Health reform sparks hospital merger madness

Not feeling the effects of health care reform yet? Don’t worry, your time will come, maybe sooner than you think. For now, it’s the health care industry players (hospitals, insurers, manufacturers) that are scrambling to comply with laws that have already come into play, and to prepare for even broader changes to come. While the full impact won’t be felt until 2014, consumers are already beginning to take notice as changes made by these companies influence the care they receive.

One area where reform is starting to make big waves is the hospital industry. While medical centers were already consolidating on a regular basis prior to the dawn of Obamacare, nervous hospital operators anticipating tougher times (or seeking to maximize profits) once health care reform takes full effect are now pursuing mergers and partnerships on a broader basis.

After weathering the economic storm of 2008 and 2009, many hospitals that managed to hang on to their status as not-for-profits (typically owned by counties, municipalities, religious orders, or foundations) continue to struggle financially, and some are determining that going it alone is not the wisest course with more uncertainties to come. Others are choosing to consolidate to meet Obama’s initiatives for cost-control measures and regional cooperation among facilities.

Some hospitals are taking shelter under the broad wings of well-oiled corporate hospital operators, and some regional centers are taking the tack of teaming up with nearby providers to (hopefully) reduce expenses in areas from data management and medical system upgrades to supply procurement and billing functions. For Hoover’s editors (like myself), such trends keep us on our toes as we scurry to track and record deals such as Johns Hopkins Medicine’s recent acquisition of Sibley Memorial and Southwest Washington Medical Center’s agreement to join the larger PeaceHealth network. 

Taking things to a higher level, this week for-profit hospital operator Community Health announced a $7.3 billion offer to purchase Tenet Healthcare. Such a merger of two large industry players could spur similar deal proposals, as successful health care providers seek an even larger slice of the pie.

Such mergers and affiliations are especially attractive as hospitals and physicians work to qualify for new financial incentives by meeting government cost-management initiatives, such as forming accountable care organizations(ACOs) and implementing electronic health record (EHR) systems.

Many care providers are seeing changes in the insurance industry, such as lower or higher reimbursement rates on certain products and services (including Medicaid and Medicare programs), as further incentives to pair up. Pharmaceutical and medical device manufacturing companies also have a direct role in how hospitals must adjust to regulatory changes. For instance, earlier this week makers of “orphan” (rare disease) drugs informed children’s hospitals that they would no longer qualify for certain discounts under new health care laws.

The cost-control measures that fuel health care reform are intended to benefit hospitals in a variety of ways, such as reducing the number of uninsured “charity” patients and providing government grants to fund quality improvements. They also aim to lower costs to consumers by increasing competition, reducing errors and fraud, and improving coordination of care. However, there is potential for many of these measures to backfire if not implemented carefully.

When it comes down to it, hospitals must find innovative ways to reduce their operating expenses so that they can continue to provide quality health care while keeping their operations in the black. And in the present environment, the most logical option for many providers is banding together. Whatever the method, if the US is to be successful in overhauling its health care system, restructuring the way that hospitals operate is a necessary component of change.

~

Photo by Taber Andrew Bain, used under a Creative Commons license.