By Shane Devereux
The healthcare environment is seeing a rise in market consolidation in both hospital and payer spheres. The number of planned hospital and health system mergers in 2017 was the highest in more than a decade, with hospitals announcing a total of 115 transactions in 2017.1
This year has already seen multiple pending hospital and health system mergers take place; between Catholic Health Initiatives and Dignity Health; Beth Israel Deaconess and Lahey Health; and now most recently, between Aurora and Advocate Health.
The market is also seeing a shift in the number of physicians transitioning to hospital-owned practices, with hospital-employed physicians increasing by 63% between 2012 and 2016.2 In the ambiguously changing market, hospitals are mindful of competition to ensure their longevity.
Why are mergers becoming so ubiquitous?
The reasons behind hospital mergers are multitudinous, but the rationale at the forefront can be summarized by support in bearing the financial risk in emerging value-based payment systems, as well as clinical standardization to reduce cost and improve quality.
Smaller hospitals are readying themselves for the continued leap toward value-based payment systems. For example, with a small but high-cost patient population, smaller hospitals are gripping onto integration into larger systems, so they are financially viable in downside-risk payment systems. By growing, hospitals see potential in gaining larger payments from health plans.
Mergers are creating opportunistic advantages for smaller hospitals, alleviating administrative burdens via better access to resources and technology and offering attractive innovative technological equipment. For example, Catholic Health Initiatives and Dignity Health’s merger prioritised further advancement of digital technologies and innovations.3
How are mergers benefiting patients, and the larger ecosystem of healthcare?
Benefits of hospital mergers are seen in the standardization and enhancement of clinical protocols, which reduce hospital costs and improve the quality of care. One can look to the Stanford Healthcare-ValleyCare merger and its resulting hospitalist program, whereby unassigned patients in the ValleyCare Emergency Department are now covered by Stanford hospitalists, allowing ValleyCare physicians to spend more time with their assigned clinic outpatients and less time scrambling to inpatient wards.
Merging hospitals also may benefit patients to move toward more robust options in terms of accessing care. While a more integrated organization will create high-quality care at a lower cost, this will intentionally make healthcare accessibility for individuals and communities more realistic.
Benefits are not only directed toward patients; healthcare professionals may also find benefits in the form of provider consolidation through shareable electronic records, creating more coordinated patient care across the care continuum, alleviating administrative burden.
The Potential Drawbacks:
With the benefits come the drawbacks, and the occurrence of hospital mergers may lead to price increases and less affordable care. Hospital mergers naturally gain a larger market share, in turn creating a macrocosm of higher costs toward health plans. But it is the consumers that will carry this burden in the form of greater premiums.
The increase in physician employment will also have diverse impacts on the healthcare ecosystem. Physicians in health system or hospital employment tend to perform more services in a Hospital Outpatient Department setting; this in turn increases both costs to the Medicare program and financial responsibility for patients.4
Reshaping the Market:
Hospitals are recognizing that they need to stay competitively viable. By merging with larger systems, this accommodates for improved clinical standardization, acquired advanced equipment, and a well-positioned stake in value-based payment structures. Hospital mergers are reshaping the healthcare market in response to the quickening pace of healthcare reform, a trend that is expected to continue throughout 2018.
Beyond hospital mergers, the healthcare landscape is continuing to become saturated in news of cross-industry mergers with that of CVS and Aetna, and the recent disclosure of a possible merger between Walmart and Humana, a competitive concern to hospitals and primary care providers.5 In our next blog post, TKG will analyze the positive and negative effects these payer-led mergers are expected to have on patients, providers, and the healthcare industry as a whole.
References:
1. Kaufman Hall Transactions Data. https://www.kaufmanhall.com/sites/default/files/2017-in-Review_The-Year-that-Shook-Healthcare.pdf
2. Physician Advocacy Institute. Updated Physician Practice Acquisition Study: National and Regional Changes in Physician Employment. https://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI-Physician-Employment-Study.pdf. Published September 2016.
3. Dignity Health and Catholic Health Initiatives to Combine to Form New Catholic Health System Focused on Creating Healthier Communities. https://www.dignityhealth.org/about-us/press-center/press-releases/dignity-health-and-catholic-health-initiatives-announcement. Published December 7, 2017.
4. Physician Advocacy Institute. Updated Physician Practice Acquisition Study: National and Regional Changes in Physician Employment. https://www.physiciansadvocacyinstitute.org/Portals/0/assets/docs/PAI-Physician-Employment-Study.pdf. Published September 2016.
5. Hospitals Fear Competitive Threat from Potential Walmart-Humana Deal. Wall Street Journal. https://www.wsj.com/articles/hospitals-fear-competitive-threat-from-potential-walmart-humana-deal-1522587600. Published April 1, 2018.