Benefits of consolidating hospitals. Health care market consolidations: Impacts on costs, quality and access.



Benefits of consolidating hospitals

Benefits of consolidating hospitals

The volume of healthcare mergers and acquisitions lately has been stunning. But to some hospital and health system executives, it's nothing compared to what's coming over the next decade. This article appears in the October issue of HealthLeaders magazine. While this consolidation is "a long way away" from completion, he says, independents will continue to disappear—a trend that will pick up speed as time goes on—thanks to declining reimbursement, lack of capital access, and their inherent inefficiency compared to integrated systems.

If many of the most influential health system leaders are to be believed, independent hospitals are a dying breed, and small systems might be right behind them on the endangered list. The United States has around 5, hospitals, according to the American Hospital Association, and already more than half of them slightly more than 3, belong to systems. Expect that trend not only to continue but to accelerate, industry leaders say. What's more, Cosgrove says, the drivers of consolidation have changed.

For one thing, government regulators are watching closely and often are breaking up even completed mergers that they deem have local or regional monopoly at heart more than operating efficiencies. Instead, today's mergers and affiliations are more a reflection of several factors that are making independent hospitals, and, in fact, comprehensive service hospitals of all kinds, functionally obsolete.

This trend is most visible as organizations formerly known as hospitals change their names to reflect "health system" or just "health" while eliminating the word "hospital. Whether the actual transformation of service offerings typically incorporating primary care, rehab, and other services outside the acute care setting is nascent or well in progress is another story.

The new dynamics of consolidation Today, many systems of significant size are combining—or in some cases, trying and failing to combine. The dynamism around the acquisition and affiliation game has never been stronger. Unlike acquisitions of a different era, much of this activity is centered on linkages in disparate markets. In other words, it's not the traditional play to gain market share in a particular small area that is driving this trend. Instead, the impetus stems from the increasing complexity of healthcare, the ability to drive efficiencies in the back office by leveraging technology, and the push to cut costs engineered by the federal government, employers, and health plans.

It's also about reducing duplication of services—not just in small local areas—but in large regions. The health plan sector, for example, has consolidated markedly over the past couple of decades. The top 25 health plans in terms of market share account for nearly two-thirds of total premium dollars, according to the most recent data from U.

So why won't hospitals and health systems consolidate in a similar fashion? Thompson says delivering value is the key metric for hospitals and health systems going forward, and that systems that want to grow and prosper need not only to lower their prices for care over time, but must also lower their internal cost structure so that they can compete with other low-cost interlopers like drugstore chains that will eat away at their margins through better and cheaper primary and chronic care management.

In other words, hospitals and health systems in the future will have to compete on value and price through expanding the portfolio of businesses that health systems own or with which they affiliate or otherwise share risk, and also through economies of scale.

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Blue Promise: How Hospital Consolidation Impacts You



Benefits of consolidating hospitals

The volume of healthcare mergers and acquisitions lately has been stunning. But to some hospital and health system executives, it's nothing compared to what's coming over the next decade. This article appears in the October issue of HealthLeaders magazine. While this consolidation is "a long way away" from completion, he says, independents will continue to disappear—a trend that will pick up speed as time goes on—thanks to declining reimbursement, lack of capital access, and their inherent inefficiency compared to integrated systems.

If many of the most influential health system leaders are to be believed, independent hospitals are a dying breed, and small systems might be right behind them on the endangered list. The United States has around 5, hospitals, according to the American Hospital Association, and already more than half of them slightly more than 3, belong to systems.

Expect that trend not only to continue but to accelerate, industry leaders say. What's more, Cosgrove says, the drivers of consolidation have changed. For one thing, government regulators are watching closely and often are breaking up even completed mergers that they deem have local or regional monopoly at heart more than operating efficiencies.

Instead, today's mergers and affiliations are more a reflection of several factors that are making independent hospitals, and, in fact, comprehensive service hospitals of all kinds, functionally obsolete. This trend is most visible as organizations formerly known as hospitals change their names to reflect "health system" or just "health" while eliminating the word "hospital.

Whether the actual transformation of service offerings typically incorporating primary care, rehab, and other services outside the acute care setting is nascent or well in progress is another story. The new dynamics of consolidation Today, many systems of significant size are combining—or in some cases, trying and failing to combine.

The dynamism around the acquisition and affiliation game has never been stronger. Unlike acquisitions of a different era, much of this activity is centered on linkages in disparate markets. In other words, it's not the traditional play to gain market share in a particular small area that is driving this trend. Instead, the impetus stems from the increasing complexity of healthcare, the ability to drive efficiencies in the back office by leveraging technology, and the push to cut costs engineered by the federal government, employers, and health plans.

It's also about reducing duplication of services—not just in small local areas—but in large regions. The health plan sector, for example, has consolidated markedly over the past couple of decades. The top 25 health plans in terms of market share account for nearly two-thirds of total premium dollars, according to the most recent data from U.

So why won't hospitals and health systems consolidate in a similar fashion? Thompson says delivering value is the key metric for hospitals and health systems going forward, and that systems that want to grow and prosper need not only to lower their prices for care over time, but must also lower their internal cost structure so that they can compete with other low-cost interlopers like drugstore chains that will eat away at their margins through better and cheaper primary and chronic care management.

In other words, hospitals and health systems in the future will have to compete on value and price through expanding the portfolio of businesses that health systems own or with which they affiliate or otherwise share risk, and also through economies of scale.

Benefits of consolidating hospitals

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