So London will now have a hospital merger worth over £1billion. But will it save money and lives?
On 16 March, the largest hospital merger in the English NHS was given the go ahead. The merged organisation, Barts Health NHS Trust in east London, will have an annual turnover of £1.1 billion. But do mergers achieve cost improvement or better clinical outcomes?
Is bigger better?
In addition to cost reduction, the compelling argument behind hospital mergers is that it leads to improved clinical outcomes through achieving critical mass of activity. So how does the evidence stack up? And is there an optimum hospital size for cost and quality improvements? Writing in the BMJ (1999), John Posnett, Director of the York Health Economics Consortium, says that the research evidence does not support the presumption that larger hospitals benefit from economies of scale or that service concentration leads to improved outcomes for patients. This view has been echoed by McKee et al. in a WHO publication (2002). In January 2012, an evidence review published by The Nuffield Trust concluded that the optimum size of a hospital is about 600 beds. Anything bigger introduces diseconomies of scale – costs start to rise as larger hospitals are possibly more difficult to manage. An analysis of the costs of 17 large hospitals in England seems to bear this out (see Fig 4). In terms of clinical outcomes, a comprehensive study of the impact of hospital mergers in England between 1997 and 2006, by Gaynor et al. from Bristol (2012), found little or no evidence of improvements. Many of the studies that have found a positive correlation between clinical outcomes and volumes appear to lack methodological rigour, mainly due to inadequate risk adjustment. The studies which control better for risks have found smaller effects. In addition, research has shown that larger hospital size may be associated with increased bacterial resistance to antibiotics. So why merge?
How do mergers impact on patient care?
In my experience, if hospital mergers aren’t adequately planned and implemented, patients tend to suffer. Their records may be in one hospital while they are scheduled to have an operation in another – so their operation gets cancelled. The ‘merged’ hospitals may still be using different patient identification numbers which risks clinical safety e.g. with blood transfusions. And the clinicians looking after them often have to dash around different hospital sites – struggling with traffic, parking and different ID badges – in order to get to their patients on time. As for the disparate hospital IT systems and business processes, that is the subject of another post altogether. Unfortunately, patients and the public may not understand these risks fully when they are consulted about hospital closures and re-configurations. So much for informed patient choice!
Why mergers fail
In the business world, mergers and acquisitions (M&A) are typically undertaken to add value and reduce costs by achieving economies of scale. However, evidence consistently suggests that high proportions of M&As are financially unsuccessful, with failure rates as high as 80%, as Prof Susan Cartwright of Manchester Business School writes eloquently here. More recently, KPMG has published a global study on M&A in healthcare which underscores a similar high failure rate. The study emphasises the complexity of mergers in healthcare, as compared to other industries, and highlights proper pre-merger planning, due diligence, structured implementation and good communication among the critical success factors. And that all of this takes time. Who can argue with that?
But the key thread running through the theme of failed mergers is organisational culture. Cultural differences often lead to lower productivity which in turn leads to reduced revenue. Hence, the merged entity may be worth less than expected. Executive teams can pore over complex spreadsheets and risk registers into the small hours; and Directors can debate and pontificate on ‘strategic fit’ and ‘added value’ for as long as they like – if the organisational cultures are not aligned, the balance sheet and bottom line will soon suffer after the merger.
Culture, as they say, eats strategy for breakfast. And let’s face it, there’s no such thing as a merger – it’s always a takeover.