The Merger Mania series.



So, how do you save money and improve patient care in the NHS? If you believe this government or the previous one, you would say that you merge smaller, inefficient hospitals to give you bigger, better hospitals.

More specialised, more efficient, better quality, better patient outcomes. No contest.

The mergers continue, all the time. The experts know best.

Ranged against this expert opinion are a motley crew of local patients, trades unionists, a rabble of political protesters, a few maverick Doctors and me. What do we know?

Well, get out an ice pack and put it on your head, because we’ve got to do some work if we are to understand what is going on.

I’m going to be reviewing some useful academic studies into just how efficient these widespread mergers have been.

Up till now, mergers if not planned, have been at least considered. From now on, mergers will occur randomly as a result of Trusts going ‘bust’. I’ll be taking a look at that too.

So, what I needed was a few stat-geeks and I’ve found some rather impressive ones;

Martin Gaynor, Mauro Laudicella and Carol Propper.

These three good guys have done a very important study into the result of merging Hospitals, which is what most politicians and civil servants always want to do to save money. But up till now, no one has actually cared whether it was a good idea or not.

Here’s the details of the study, its pretty good. While I am reviewing it, I’m using their stuff, so please credit  them and why don’t you take a look at the original? It must have been a lot of hard work. I’m having dongle problems, when I have the link, I’ll link.

Over the next week I will have divided it up into the important parts – and put it into bite sized chunks – so bear with me.

Why has there been such an echoing silence about this report, when it came out over a year ago?

And this is where they come from;

“The Centre for Market and Public Organisation (CMPO) is a leading research centre, combining expertise in economics, geography and law. Our objective is to study the intersection between the public and private sectors of the economy, and in particular to understand the right way to organise and deliver public services. The Centre aims to develop research, contribute to the public debate and inform policy-making.”



Bristol Institute of Public Affairs

Bristol University.

Working paper 12/281

Can governments do it better?

Merger mania and hospital outcomes in the English NHS.

January 2012.

I wanna go to America

I wanna be where the air is clear

Everything free in America.

I wanna be in Amereeeka

                   West Side Story.


Up until the three good guys from Bristol University did their study, the only studies on Hospital mergers dealt with what happened in America in the 1980’s and 1990’s.

Historically, American Hospitals, which are mainly private, were smaller than British Hospitals which are State owned. As hard times hit in the 1980’s recession, they lost business and had to merge or take over each other to survive.

I quote from the report;


“Analysis of private hospital mergers in the USA has generally concluded that these mergers bring little benefits in terms of prices and costs (e.g. Dranove and Lindrooth, 2003; Harrison, 2010; Vogt and Town 2006).

Our study is therefore more similar to studies which have examined the impacts of large numbers of hospital mergers in the US during the 1990s (e.g., Dafny, 2009; Ho and Hamilton, 2000; Krishnan, 2001; Spang et al., 2001; Town et al., 2006).

These studies find, in general, little benefit from merger and consolidation. These mergers are the result of private decisions, as opposed to central planning, and hospitals are mostly private firms.”



Now that’s interesting. You would have thought that the super efficiency of the free market – and, hey, I am talking about the American Free Market here, would have meant that merging Hospitals would have produced more efficiency, better patient outcomes and economic benefits.

Apparently not so.

So, the report then took a look at mergers which happened as a result of the actions of a state regulator, as happened in Britain 1997 to 2004.

Now we need to take a look at what the report was studying;

“In our analysis we focus on merger activity between short term general (known as acute in the UK) hospitals. The extent of merger activity was high and took place predominantly in the six years after 1997. Of around 223 acute hospitals in 1997, 112 merged sometime between 1997 and 2006.  There were around 20 mergers per year, rising to a peak in 2001 and falling to zero after 2002……..The median hospital market went from 7 to 5 hospitals.”


The report deals with the period after the election of the last Labour government in 1997 – the scale of closures is incredible (and not what anyone voted for), about half of acute Hospitals and a quarter of the total.

The effect of this slaughter can be seen in the phrase about “median hospital market” – that means choice of local Hospitals – choice went down.



“Using matching, we compare the change in performance of those hospitals that merged with those that did not over a 6 year window, looking at performance from two years before to four years after the merger date.

We examine activity, staffing and financial performance and a large set of measures of clinical quality.”


The report established a control group of Hospitals that hadn’t merged and compared these with those that had, to work out whether it had been a good deal or not.


Why was this happening?



“Drivers for mergers have included facilitating hospital or service closures as a response to a belief there is spare capacity in the short term general (acute) sector, securing financial viability of smaller organisations and increasing their negotiating power with buyers and enlarging the hospital to provide better services for the buyers of services (Garside 1999). While a reduction in average costs by better use of resources (Ferguson and Goddard 1997) is used to justify mergers, in the UK the focus has tended to be on better use of management costs rather than hospital wide economies of scale (McClenahan 1999). This is perhaps because UK hospitals are relatively large (in comparison to the average US hospital). A study of NHS hospital mergers in London in 1999-2000 (the earlier of the mergers we examine here) identified financial pressures as the most important driver of mergers during this period. The need to make savings featured in all consultation documents. More specifically, most of the merging parties had financial deficits and it was argued that mergers would reduce these. The main costs identified as being potentially saveable were management and back office costs, rather than a reduction in clinical costs.”


The aim was to reduce costs – bigger is better, or at least more efficient. The hope was that it would be possible to cut management costs while providing better clinical outcomes.

Health Service Civil Servants thought having fewer, bigger Hospitals would mean less managers and better buying power and therefore more money for Doctors, Nurses and patients.

For some unknown reason in 1997 they also seem to have thought that there were surplus beds to be got rid of?!?

Who thought that one up?

Can we have our beds back, please?

More ice needed, my head hurts!

One of the findings of the report came out of their study into the effects of competition on the provision of State Health services; this is the creating of an artificial ‘market’, where none really exists.

So in the NHS, the State buys all the services for the patients. Once upon a time there was a great big plan, attempting to match need against resources. It didn’t always work out – that’s the thing with fallible human beings and plans – but they were trying.

Now plans are out and the ‘free’ market is in.

All recent governments have tried to create some kind of market in the belief that ‘competition’ would be more efficient than planning for health needs (that is putting services just where they are needed).

The thing is, a free market is a pretty unfeeling thing, at least where healthcare provision is concerned.

I quote from the report;


“Third, we contribute to research on whether planned systems in welfare provision achieve better outcomes than the private market. There has been a great deal of interest in recent years in competition in education, both theoretically and empirically (e.g., Epple and Romano 1998; Hoxby 2000; Epple, Figlio, and Romano 2004). Initial positive findings on the impact of competition in education (e.g. Hoxby 2000) gave impetus to attempts to promote competition. These findings, however, have been challenged by later research which suggests that the benefits from competition are less easy to achieve (e.g. Rothstein 2007; Bayer and McMillan 2005). Our findings suggest that, in the case of UK hospitals, configuration of the market by government does not result in the promised gains either.”


It looks that trying to create a market where there isn’t a market, doesn’t work. Not least because merging hospitals means reducing competition . That goes back to the ‘median hospital market’ – which is about how many choices you actually get in the real world – which actually fell from 7 to 5, after the mergers. There are some other studies on this and (yawn) I’ll be taking a look at them in the weeks to come.

Foundation Hospitals and G.P.’s commissioning groups are the latest attempt to create a ‘market’ where it doesn’t exist, it’s all about to start next month and it’s going to be run by Sir David Nicholson (Mid-staffs hospital).

That’s not so good.

Meanwhile, there are three more chunks of this – I never said it would be easy.



Neil Harris

(a don’t stop till you drop production)

In six years the NHS cut 112 acute Hospitals; think how much that would have cost in redundancy payments, management time, wasted equipment and stock, redundant buildings, cancelled operations, disruption, unhappiness and stress to staff and patients. And then we ended up with fewer Hospitals.

It must have produced a heck of a lot of efficiency savings to make that all worthwhile? The italics are mine throughout, the rest are quotes from the report.


“Activity, Staffing and Financial Performance

The first four columns of Table 2 show measures of activity – total admissions, total staff, beds and total operating expenditure. These show a general fall in hospital activity post-merger. Columns (1) – (3) show that post-merger, admissions, staff and beds have fallen by around 11-12 per cent each year.”

So, the merged Hospitals shrunk by almost 12% -less staff, less beds and less patients.

“Column (4) shows the fall in activity is not matched by a fall of the same size in total operating expenditure. In the first year post merger the fall in the growth rate of expenditure was similar to that of admissions, but thereafter was less than the fall in admission, staff or beds.”

But expenditure did not fall as much as the fall in the work done.

“Column (5) examines the number of staff and shows little change in the share of staff that is medically qualified, implying that mergers lead to little change in hospital spending on staff who might bring about higher clinical quality. Columns (6) and (7) examine expenditure on managers and agency staff as a share of total hospital expenditure. The share of expenditure on managers rises a little in the year of merger: the point estimate of 0.35 percentage points represents around an 8 per cent increase on a mean of around 4.4 per cent.”

Wait a minute, after mergers the expenditure on managers goes up by 8% while there is no change in the share of staff that is medically qualified – no more Nurses or Doctors but more managers?

But there was less to manage.

Or maybe they just awarded themselves a big, fat pay rise to celebrate the merger?

“What is more dramatic is the increase in the share of staff who are not permanent employees of the hospital. The share of expenditure on agency staff rises significantly post-merger and by year 4 post-merger is about 1.15 percentage points higher. At the sample mean of around 3.5 per cent this is an increase of around 33 per cent. This provides a possible answer to how merger can lead to a larger decrease in (permanent) staff than in hospital spending. Merging hospitals appear to be offsetting decreases in permanent staff with temporary hires.”

So the effect of the merger is to make experienced staff redundant to ‘save’ money (‘we’re making savings through merging’) but then the expensive managers find they got it wrong, so the cost of expensive, temporary agency staff goes up by 33%, because they got rid of too many medical people.

Agency staff are far more expensive than permanent staff, and they don’t have a commitment to the Hospital (as in “ do I give-a-damn?, I’m outa here”).

DOH! and I thought I was stoopid.

“The last two columns of Table 2 shows a key measure of performance for the government – the surplus of the hospital (in levels) - and a crude measure of labour productivity: the (log of the) volume of admissions per NHS employee in the hospital. The surplus is shown in column (8). It is clear that mergers are costly: any surplus falls in the year immediately before operation as a merged unit and falls thereafter, such that by four years after the year of first operation as a merged entity, the deficit is nearly £3m. This result suggests that mergers are expensive to carry out and result in the increasing deterioration of the financial position of the hospitals involved both in the short and in the long run. Column (9) shows no significant productivity gain following the merger.”

Do my eyes deceive me?

Mergers are expensive.

Managers are expensive.

We end up with fewer Hospitals, which cost more and are less efficient. And more managers.

The result of mergers is worsening financial deficits and no improvement in productivity. That’s a tough one to swallow; I thought it was supposed to be the other way round.

Surely quality must have gone up?

Tomorrow will tell.


Now we know that all those closures cost a lot of money and then after a while it got worse, they lost even more money.

Surely, quality must have gone up – that’s what it was all about. The italics are mine, the rest are quotes from the report;


“ Waiting times, length of stay and quality indicators

Table 3 presents results for a large set of measures that have been used as indicators of quality of patient care. We begin by examining waiting time and length of stay. We then examine measures of quality of clinical care published by the national agency which constructs measures of clinical quality of care.

In the main, none of these measures show an improvement and there are some signs of a decrease in quality of care. Column (1) shows no effect of merger on length of stay. Columns (2) and (3) present some evidence of an increase in both mean waiting times and of the share of patients waiting more than 180 days for an elective admission four years post merger.”

Wait a minute, length of hospital stay was the same and waiting times got worse?

“In terms of the clinical measures, we examine death rates from emergency heart attack (AMI) admissions, a widely used measure in the literature on the impact of market configuration on outcomes (e.g. Kessler and McClellan, 2000), measures of care for patients with stroke and measures of care for patients with fractured proximal femur. For AMI (column 4) and fractured proximal femur (columns 8 - 10) the quality indicators remain relatively stable post merger. However, columns (5) and (6) show poorer outcomes for patients admitted following a stroke. Column (5) shows higher death rates post discharge after merger. Column (6) shows higher readmission rates to hospital within 28 days of discharge, both immediately before the merger and post-merger. Column (7) shows an improvement in one measure – the 56 day return rate to usual place of residence - but this is for only one of the years post-merger and is only significant at 10%.”

Now this is bad;

Heart attacks and broken femurs no change.

Strokes – death rates get worse after merger – probably because there is more delay in getting treated because the nearest Hospital is now further away.

Higher death rates after being discharged.

Higher readmission rates within 28 days.

The only thing that got better was the Hospitals ability to kick patients out early, often too early, and that only got better in only one of the years examined.


“In summary, we find that whilst the effect of mergers was to shrink the combined size of the merged hospitals, other than this reduction in size and associated fall in activity, the merger does not appear to have brought benefits. Labour productivity does not appear to have risen, the merger has not stemmed the increases in size of deficits and there are no indications of an increase in quality (in fact there is one indicator of a fall in measures of clinical care.”

That means it was all a waste of time as well as money? And then things got worse.

That can’t be right. I’ll wrap it up tomorrow.

I’m printing the report’s final conclusions in full because they are important. Every local campaign to prevent closures and mergers needs to have this in mind when they take on those pesky experts who ‘always know best’;


The literature on mergers between private hospitals suggests that such mergers often produce little benefit. Despite this, the UK government has pursued an active policy of hospital merger. These consolidations are initiated by a regulator, acting on behalf of the public, and justified on the grounds that they will improve financial performance, productivity or patient care. We examine whether this promise is met by exploiting the fact that between 1997 and 2004 in England around half the acute general hospitals were involved in a merger.

We examine the impact of mergers on a large set of outcomes including financial performance, productivity, waiting times and clinical quality and find little evidence that mergers achieved gains. While admissions and staff numbers fell relative to the pre-merger position, which is desirable if the regulator wanted to remove spare capacity, labour productivity did not rise and financial deficits increased. And while most measures of quality were unchanged, there is no indication of an improvement in quality to offset this poorer financial performance. Further, in already concentrated markets, mergers brought about lower reductions in capacity. This suggests smaller gains in these markets.

We therefore conclude that there seems to be little hard evidence that this attempt at government planning of hospital care has achieved much more than simply reducing hospital admissions. This removal of capacity may reduce patient welfare. We show that waiting times rose post merger; travel distances may also rise when hospitals are closed. Consolidation also downstream reduces potential competition, which has been shown in the UK market to have some beneficial effects on patient outcomes and length of stay (Gaynor et al 2010, Cooper et al 2011, Bloom et al 2010). Given this, it seems the English government should carefully consider potential losses before allowing more mergers between short term general hospitals.”

Worse for patients, worse for staff, cost more, did less but better for managers.

‘May reduce patient welfare” – kinda says it all, really.


I’m going to give us all a break (you can put the soggy ice pack back in the fridge for now) because whenever I do serious stuff, I lose nearly all my readers. 8 days ago I was getting over 30 hits a day – all gone now (nearly but not quite all gone – thank you for staying with me)

A good friend has suggested to me that my Blog would do much better if I just put up a video of myself doing a silly dance. Trouble is, he is probably right. Mind you, he has problems e-mailing, so what does he know?


But I am going to go on going on. Later on I’ll take a look at the ‘new’ policy of setting up independent ‘trusts’, and then letting them go ‘bust’.

It’s a ‘Free Market capitalist’ way of bringing about mergers. Except nothing is free and there is no market. Mind you it is the people’s capital, until we let them squander it all away.


At the start of this series, I sent an e-mail to Bristol University, warning them I’d been using their research, which seemed only fair. In fact, it’s just the Centre for Market and Public Organisation that’s in Bristol, the authors are based elsewhere.

One of the authors kindly sent me over a direct link to their article, which is well worth a look;

(Luckily, between you and me, I think I managed to get away with the whole ‘st#t-g#ek’ thing, phew!)


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