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Get used to seeing more mergers and acquisitions in healthcare
September, 16th 2014

The pace of mergers and acquisitions among healthcare giants continues, seemingly unabated, as more systems look for ways to better coordinate care.

This time, it’s a merger between Advocate Health Care and NorthShore University Health System in Illinois, a deal that would create a $7 billion, 16 hospital so-called mega-system, spurred by the well-known shifts across the hospital and healthcare industries that have resulted in unprecedented consolidation.

Yet some markets have been slower to see this than others. In, say, California, this is relatively old hat considering the mega-systems like Kaiser Permanente, Sutter Health, Prime Healthcare Services and others. But Chicago apparently has not seen the same extent, with what some experts called a more fragmented healthcare landscape, so the move to a larger system in some ways makes a lot of sense.

‘Go big or get out’ seems to be a mandate across the health system these days. Across the continuum of healthcare products and services, consolidation is a given,” writes Paul Keckley, a healthcare consultant who formerly headed the Deloitte Center for Health Solutions.

While the consolidation in healthcare is now a mega-trend that is likely to continue, the creation of super systems does raise the concern of monopolies and decreased competition, which is bad news for consumers and the cost of care, Keckley writes. And going big doesn’t always mean things get better. Among other observations, Keckely says:

“Most of the consolidation in our industry is about scale. Shrinking operating margins in core businesses, risk and cost pressures are hitting every sector, so achieving better scale consistently is necessary to fund growth and remain competitive. Consolidation to acquire new capabilities is less prominent in our industry: it’s likely that it’s going to change.”

“Consolidators tend to obsess about their competitors of like-size, but competition from nimble niche players with a unique value proposition is often more problematic to bigger incumbents.”
Other metropolitan ares are likely to see the same pace of consolidation, if they haven’t already, according to Moderen Healthcare, noting that Dallas, Detroit and New York City have seen similar mergers of former standalone competitors.

“Beaumont Health completed its three-system merger this month, creating one of the most expansive provider organizations throughout Detroit’s suburbs. In Dallas last year, Baylor Health Care System and Scott & White Healthcare combined to form the largest not-for-profit system in Texas. And in New York City, Mount Sinai Medical Center and Continuum Health Partners consummated a deal that created Mount Sinai Health System, one of the largest private health systems in the area.”
As anyone in healthcare knows, population health is what’s driving a good deal of the merging, with health systems large and small contending with reduced reimbursement rates from CMS for repetitive readmission, meaning the heads in beds model is out, and ACOs and integrated systems are in. Big-time mergers can help with that, but it’s no guarantee. Financial duress for safety-net hospitals and providers is driving plenty of consolidation as well.

In Illinois, Advocate has been aggressive about forming ACOs – it has a a Medicare Shared Savings Program ACO and an ACO contract with the state’s dominant commercial insurer, Blue Cross and Blue Shield of Illinois, according to Modern Healthcare.

The trade group representing health plans, America’s Health Insurance Plans, has raised concerns over anti-competitive pricing.

But there’s little consensus on whether mergers will create such pricing, with some arguing the opposite – it may actually force prices down if health systems of all sizes are looking for a partner.

One area that will most certainty be a challenge, particularity for NorthShore and Advocate, is the integration of EHR and IT systems. Advocate uses a Cerner Corp. System while NorthShore uses Epic Systems. This time, it appears Epic will win over Cerner while the two systems explore the idea of converting all hospitals to one vendor, according to Modern Healthcare.


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