Beth Israel Deaconess Medical Center and Lahey Health are exploring a possible merger for the fourth time in five years, The Boston Globe reported.
Beth Israel and Lahey each operate four hospitals in Massachusetts and a merger would between the two would create a significant counterpart to the state’s largest health system, Partners Healthcare.
- Hospital consolidation is on the rise in Massachusetts and elsewhere, but it is not clear that mergers will contain costs as intended.
More and more health systems are exploring mergers to improve their financial positions and many of these deals are going through. There were 112 hospital transactions in 2015, up from 18% in 2014, according to a January Kaufman, Hall & Associates report.
Consolidation is intended to contain costs. “Contractor rates with payers are not keeping pace with cost increases so you’re seeing the need to spread what appears to be a resilient fixed cost base over a larger population or system that’s driving a need for scale,” Stephen Moore, a healthcare M&A partner at PwC, told Healthcare Dive in May.
Despite claims that mergers contain costs, it seems they could lead to higher prices. In northern California, the region’s two largest health systems set prices 20% higher than at other hospital in the state, according to one study. MedPAC recently reached a similar conclusion. When hospitals improve their market power, they are in a better position to negotiate higher rates with private payers and lose the incentive to keep costs low.
While merger plans continue, they also face significant roadblocks. Earlier plans to merge Beth Israel and Lahey fell through to disagreements between the two organizations. Additionally, a merger would need to be approved by state officials and it is unclear whether approval would be granted, according to The Boston Globe.