It's possible Lancaster General Health's absorption into the University of Pennsylvania Health System would, in the words of the organizations' Oct. 28 press announcement, "improve access to cost-effective, high quality care."

If it does, however, it will be an exception to the general rule, industry experts said.

Hundreds of U.S. health systems have merged in recent years, but "the benefits have been elusive," said Martin Gaynor, a professor of economics and health policy at Carnegie Mellon University and former director of the economics bureau at the U.S. Federal Trade Commission.

LG Health and the Penn system announced Oct. 28 the signing of a memorandum of understanding to explore a "consolidated relationship" under which LGH would come under the umbrella of its larger Philadelphia-based peer. The two organizations have had a strategic alliance since February.

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The memorandum does not commit the two organizations to combining, only to studying the possibility. LG Health and Penn should know within six months if moving forward with a deal makes sense, LG Health CEO Tom Beeman told LNP at the time.

In their Oct. 28 announcement, LG Health and Penn said their offerings complement each other. Penn offers "advanced, highly specialized medicine" that could mesh with LG Health's primary care network, creating "a full spectrum of services to improve health outcomes and the overall patient experience."

Speaking to LNP that day, Beeman said the parternship would allow greater coordination of care. Patients receiving advanced treatment at Penn's flagship hospitals could receive followup care from Penn staff based here.

Both systems use the same electronic health records system, so combining would allow seamless patient movement between facilities, he said.

The systems could collaborate on research and teaching, offering LG Health medical personnel greater opportunities to gain credentials and experience.

Both are nonprofits, with a shared vision of health care, and both are financially strong, Beeman said.

All in all, a consolidation would offer "tremendous advantages for people here," Beeman said. "We think it would be a real home run."

Evidence is lacking

Such statements don't surprise Gaynor at all.

"The merging entities always say it's going to be beneficial," he said.

However, he said, "the evidence doesn't support the claims."

More than 1,000 hospital and health system mergers have occurred over the past 20 years.

The "overwhelming majority" of them "are pro-competitive and fully support the twin goals of higher quality of and more affordable health care," says the American Hospital Association.

Academic researchers studying the data beg to differ. They have yet to find a solid correlation between mergers and improved outcomes, Gaynor said.

Merging organizations "is really hard," Gaynor said. Efficiencies that look achievable in principle may not be so in practice.

Or market power, not efficiency, may be the real motive, he said.

In a 2013 study of health industry mergers, Booz & Co., a consulting firm now known as Strategy&, wrote that “most deals have failed to live up to financial expectations.”

Ann O'Malley, a physician by training, is a senior fellow in the health services division of Mathematica, a policy think tank.

Generally, in a merger like the one being contemplated by LG Health and Penn, the smaller hospital is looking to increase its financial stability and gain access to capital, she said.

The larger one is looking to increase market share and to the number of patient referrals it gets from doctors, "especially for lucrative specialty services and inpatient admissions," she said.

There certainly can be benefits for patients, she said. Sharing electronic health records "is a win," and so is well-coordinated care, she said. If patients can get more heath care services in Lancaster rather than Philadelphia, that's all to the good.

On the other hand, when health systems get bigger, they gain power, and "that really poses a risk to driving up prices," she said.

Big vs. local

Jim Schmucker is the executive director of the Lancaster County Business Group on Health.

A big part of controlling health care costs, he said, is a matter of keeping patients healthy, so they don't need higher levels of care.

Typically, those efforts are about understanding your patients, creating robust personal and community relationships. Physicians who understand their patients know, for example, when to recommend a diet or lifestyle change instead of an expensive procedure or series of tests.

"That's all local. That's all connection," Schmucker said. "How does being bigger help that?"

LG Health declined to say more about the proposed consolidation for this article.

"We are on the very front end of discussions," spokesman John Lines said in an email. "We understand the public’s interest, but there are no additional details to provide."

One in five?

There's no doubt a wave of consolidation is reshaping the U.S. health industry.

Nearly 100 hospitals and health systems announced mergers in 2013 alone, according to industry consulting firm Kauffman Hall.

Booz & Co. predicted one-fifth of U.S. hospitals could be absorbed into mergers within seven years.

In Lancaster County, Lancaster Regional Medical Center and Heart of Lancaster Regional Medical Center changed hands at the beginning of the year when Community Health Systems completed its acquisition of their parent company, Health Management Associates. CHS, a for-profit entity, now owns more than 200 hospitals in 29 states.

Ephrata Community Hospital, meanwhile, became an affiliate of York County-based WellSpan Health just over a year ago.

Almost all hospital mergers have to approved by the Federal Trade Commission and the Department of Justice antitrust division. State attorneys general can also get involved.

The ACA effect

Much of the consolidation is driven by the Affordable Care Act.

The law was designed to rein in costs as well as expand access: The U.S. spends about 18 percent of GDP on health, roughly twice the rate of other developed countries, but does not get better outcomes.

Health systems say they have to get larger to absorb the ACA's implementation costs and payment cuts.

The industry's previous merger wave, in the mid-1990s, was also a response to cost-control efforts. That time, it was managed care.

Beeman, citing an analysis by the Hospital & Healthsystem Association of Pennsylvania, says the ACA will cost LG Health $250 million over the next five to six years, due to lower reimbursement rates and other factors.

Health systems need to be big to absorb such hits, the argument goes. Beeman says nonprofit institutions need to be in the $5 billion to $10 billion range.

Gaynor said he doesn't buy that argument. It might apply in the case of truly small systems — say, a community hospitals with less than 100 beds — but LG Health has 690 beds and annual reveue of nearly $1 billion.

"That's a big hospital system," he said.

The larger an organization, the more impersonal and bureaucratic it tends to be, and responsibility is diffused, Schmucker said. He's also worried about the potential loss of local control.

LG Health has said there will be a local board, and LG Health representation on the Penn system board. But which board will call the shots, Schmucker asked. Which one will have final say on key financial decisions?

LG Health has grown over several generations into a very strong health system serving the Lancaster County community, but if a merger occurs, "it's going to be eroded," he predicted.

"They do an extraordinary job," he said. "I don't want to surrender that."

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