A Conversation About Hospital and

Healthcare System Consolidation

A Conversation About Hospital and

Healthcare System Consolidation

Introduction

• For the past several years, hospitals have been buying up

other hospitals

• In parallel fashion, healthcare systems have been acquiring

independent hospitals and/or merging with other healthcare

systems

• The trend continues across the nation in major metropolitan

areas, mid-sized cities and even rural markets

Discussion

• Depending on the organizations involved, there are different

reasons why they are coupling together

• In general, it can be assumed one or more of these three key

factors are primary considerations involved with driving these

arrangements:

• Competition

• Costs

• Continuum of Care

Competition

• Hospitals and healthcare systems are competing against

each other in designated markets for patients

• As a competitive maneuver, they buy out other hospitals to

widen access to patients and outgrow rivals in the market

• In large to mid-sized markets, there may be several

healthcare systems vying for patients in the greater

metropolitan area; by merging with another healthcare

system, they not only grow in patient numbers but in

geographic reach as well by having facilities in more zip

codes to serve them

Costs

• Hospitals and healthcare systems are challenged with rising

costs and reduced reimbursement from commercial and

government health plans while being required to increase the

level of care they provide

• By growing larger, they can more effectively bargain against

health plans by leveraging their size and the number of

patients they provide care for

• Their larger size also enables them to negotiate for lower

prices from suppliers including pharmaceutical and medical

product manufacturers, distributors, wholesalers and other

vendors they do business with

Continuum of Care

• By growing larger, hospitals and healthcare systems can

collectively offer more care and services

• They can feature more specialties and fortify their own

referral network of providers for patients to choose from as

their healthcare needs require

• There is a significantly less chance patients will have to go

outside of their healthcare system to get the care they need

• Continuum of care is ingrained within accountable care

organization (ACO) business models

Outlook

• As consolidation continues, health plans will find it more

challenging to reduce reimbursement to larger healthcare

provider entities

• Consumers may find it more convenient to access healthcare

via one-top-shopping for all of their healthcare needs through

the various stages of their lives but may have to pay higher

insurance premiums for it due to decreased competition

• Quality may improve due to the continuum of care unless

initial care provided is not adequate and the healthcare

system is burdened with overcoming earlier shortfalls

Outlook

• Some believe the level of care will go down because there is

less competition among care providers

• Opposing opinion is the larger healthcare systems will drive

down administrative expenses and have more of their own

data to make better care and cost decisions

• The future outlook includes commercial health plans buying

healthcare systems and conversely; healthcare systems

developing their own risk management models and offering

health plans directly to consumers and employers

Summary

• Hospital/healthcare system sector consolidation continues

• Impact on consumers/patients can’t be avoided as healthcare

is localized, they seek care from providers closest to them

• Employers/health plans won’t fully absorb higher costs,

portions will be passed onto consumers

• There are significant advantages and great potential in

extending the continuum of care including reduced

administration costs, access to clinical data and development

of effective standards of care; collectively these could well

deliver increased care at reduced cost

Summary

• For clinicians, their day-to-day responsibilities and careers

are impacted as the business models of healthcare delivery

continue to evolve

• Firms doing business with hospitals/healthcare systems

including pharmaceutical/device manufacturers, material

suppliers, IT service providers and others will modify their

business practices to align with healthcare sector changes

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