Giant hospitals neither cheaper nor better

March 15, 2014 - 06:31

Mergers in the hospital sector are based on a desire for better and cheaper hospitals. So far, few such effects have been seen, resercher believes.

In front of Ullevål Hospital in Oslo, Norway. One of the four hospitals that were merged into one giant hospital 2009. (Photo: Stian Lysberg Solum, NTB Scanpix)

"The alleged effects have not been documented. There is no basis for claiming that giant hospitals and big health trusts are the right medicine," says Professor Kurt R. Brekke at the The Norwegian School of Economics (NHH).

In a new study conducted by Brekke and colleagues, they look at the effects of hospital mergers.

Do they result in lower running costs? Higher quality of services? Do patients benefit?

Reduces competition

The study shows that hospital that have merged have weaker incentives for offering quality services and for running efficiently.

The reason is that a merger reduces the competition for patients.

The study also shows that the overall effect on services offered to patients depends on how the other hospitals in the same geographical catchment area adapt their services as a result of the merger.

If these hospitals also reduce the quality of their services, then the merger is clearly negative for patients.

Bigger hospitals = better quality?

When hospitals merge, there are, in theory, two effects relating to quality that can occur. 

One theory says: The bigger the hospital, the better the learning – which in turn will lead to higher quality and improved patient treatment.

In other words: If a hopital merges, it will be able to treat more patients in the same unit, which means that, the hospital get increased experience, resulting in improved quality.

"Let’s say that you have one hospital that performs one operation a year and another that performs the same operation a hundred times. In that case, you assume that the quality is much better at the hospital where they do it a hundred times," Brekke explains.

The USA and the UK

Several studies have checked whether this theory holds true.

"This is an effect that may exist, but that no studies of hospital mergers have been able to identify."

Professor Kurt R. Brekke at the The Norwegian School of Economics (NHH). (Photo: Helge Skodvin)

Studies from the USA and the UK have looked at learning effect following a merger.

Brekke believes that the studies from the UK, in particular, can shed light on the situation in Norway.

"If you look at the UK, which has the same kind of publicly funded health care system as Norway, quite a few studies have been conducted that look at the effects of extensive mergers."

"They find no quality improvements. Researchers are unable to document such significant positive effects of mergers, not even in the long term," Brekke says.

Total effect depends on other hospitals

The other theory says that the quality is reduced because you eliminate or weaken competition.

The more hospitals that are merged, the fewer players are left, which can result in lower quality and poorer patient welfare, also at those hospitals that are not part of the merger.

In addition, when this giant hospital is not located in one place geographically, the risk of negative effects of a merger increases.

Brekke believes that it is important to look at the consequences of a hospital merger for the health trusts in the same geographical area that are not part of the merger.

If the merger entails changes at the merged hospitals, there is reason to believe that this will affect the services provided at nearby hospitals. The total effect of a merger includes more than just the services provided at the merged hospitals.

More expensive

In addition to Brekke’s research, two new master’s theses show that there are no traceable positive effects on quality and costs after a hospital merger.

One of the students has been given access to data that show running costs before and after a hospital merger.

The student’s thesis shows that the costs per bed increase in step with the size of the hospital.

According to calculations carried out in advance, the Oslo University Hospital merger in 2009 was supposed to lead to savings of approx. NOK 900 million a year. Before the turn of the year 2013/2014, the hospital was looking at a total deficit of NOK 300 million, NOK 200 million of which was budgeted.

No effect on quality

Facts

In 2009, Ullevål Hospital, Rikshospitalet, the Norwegian Radium Hospital and Aker Hospital were merged into one giant hospital - Oslo University Hospital (OUS).

OUS is Norway’s biggest domestic enterprise with 20,000 employees and a budget of NOK 17 billion.

OUS is organised under the South-Eastern Norway Regional Health Authority. The health region is responsible for providing specialist health services to 2.8 million people.

In another master’s thesis, that looks at changes in quality following hospital mergers, it was found that quality is slightly reduced at hospitals that merge.

The probability of death 30 days after admission for a hip fracture, heart attack or stroke in 55 Norwegian hospitals during the period 2002 to 2012 was investigated .

The main finding is that mergers have no positive effects on quality at the hospitals.

If you look at each of the quality indicators in isolation, i.e. the probability of death following admission for one of the three conditions – the mortality rate is slightly higher, which indicates slightly poorer quality at the merged hospitals.

Pragmatic view

Brekke recognises that mergers in general can have positive effects, but that, for labour-intensive organisations like hospitals, they may be difficult to achieve.

"I take a pragmatic view of the matter, and do not rule out that mergers can lead to savings. In the hospital sector, however, there are other factors than equipment expenses that drive up costs."

It is a labour-intensive sector, and approximately 60 percent of the expenses are payroll expenses. Some treatments are more equipment-based, but most treatment requires labour.

In Brekke’s view, if you want to reduce running costs, you must downsize staff or organise the work differently.

Matter of life or death

The researcher believes that it is important to study the effects of hospital mergers and closures. The hospital sector is a big part of the economy and provides extensive welfare services. It could be a question of life or death

"If a merger entails closing down all or parts of a hospital, and you are unable to document higher quality or improved cost efficiency, long travelling distances may be all that is achieved," he says.

"So far, these mergers seem to be resulting in more losses than gains, but it is necessary to study the question in more detail," Brekke concludes.

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Read the Norwegian version of this article at forskning.no

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NHH was founded in 1936. With its affiliated institutes SNF and AFF, NHH constitutes the oldest and largest centre for research and study in the fields of economics and business administration in Norway. Read more

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