When doctors talk about the biggest challenges facing the profession, they generally focus on topics such as burnout, the shortcomings of EHRs, and the transition to value-based care.
Often overlooked, however, is the rapid consolidation taking place throughout the healthcare industry, a trend with profound implications for the availability and affordability of medical care.
Whether it’s hospitals buying up independent medical practices, hospital systems swallowing one another, or insurance companies merging with pharmacy chains, the prevailing attitude now is that bigger is better.
Among providers, that sentiment results in part from the uncertainty created by shifting payment models and competition from new entrants in the industry, says Anthony LoSasso, PhD, professor in health policy and administration at the University of Illinois-Chicago and executive director of the American Society of Health Economists.
“The feeling is that size will protect them [hospitals and doctors] in the face of new initiatives, be they market-driven or government-instituted policies,” LoSasso says. “Essentially, they’re trying to buy a seat at the table.”
While consolidation hasn’t received as much attention as, say, the price of prescription drugs, it’s far from a new phenomenon.
A 2014 study for the National Bureau of Economics Research, for example, noted that more than 1,000 hospital mergers had taken place since 1994. In 2015 Congressional testimony Leemore S. Dafny, PhD, now a professor of business administration at the Harvard Business School, showed that in 2006 the four largest commercial insurers already controlled 74 percent of the healthcare insurance market. (By 2014 it was 83 percent.)
That said, the pace of consolidation has increased dramatically in the last few years. Consider that in 2018 alone:
- Texas-based hospital systems Baylor Scott & White Health and Memorial Hermann Health announced plans to merge, creating a 68-hospital system with annual revenue of more than $14 billion.
- Philadelphia-based Jefferson University said it would acquire Einstein Healthcare Network, creating an 18-hospital system in and around Philadelphia.
- Cincinnati-based Mercy Health completed an $8 billion merger with Maryland-based Bon Secours Health System to form the nation’s fifth-largest Catholic health system, with 43 hospitals and more than 2,100 physicians.
- Summa Health, headquartered in Akron, Ohio, revealed it was seeking to merge or partner with another healthcare system
- Drugstore chain CVS received government approval to buy Aetna, the country’s third-largest health insurance company, for $69 billion.
- Health insurance giant Cigna and pharmacy benefit manager Express Scripts received the government’s OK for their $52-billion merger.
All this activity follows a year that saw 967 merger and acquisition deals among healthcare payers and providers, according to the PwC Health Research Institute.
Drivers of consolidation
Experts cite a variety of motivations for the accelerating pace of mergers and acquisitions among healthcare providers, most of which involve the drive to grow revenue and profits.
That leads hospital systems, for example, to acquire primary care practices to increase the size of their patient base, ensure that patients are referred to specialists within their system, and take advantage of lucrative facility fees—the charges tacked on to services and procedures performed at a medical practice when it becomes part of a hospital system.
“The idea is, ‘let’s capture as much of the patient dollar and as much of the patient services as we can, and let’s keep it under one organizational umbrella,” explains Timothy Hoff, PhD, professor of healthcare systems and healthcare policy in the D’Amore-McKim School of Business at Northeastern University in Boston.
The movement toward value-based reimbursements is another catalyst for hospitals to buy independent primary care practices, Hoff says, in that it causes hospitals to broaden their focus beyond inpatient care and expensive surgical procedures.
“Essentially they [hospitals] are looking to reinvent themselves, and that involves placing more emphasis on services like primary care and population health,” Hoff says. That process, in turn, spurs hospital systems to acquire primary care practices and even establish new primary care “access points,” such as urgent care centers.
The result, Hoff says, is that even under value-based payment models, “consolidation will keep moving along because there are rewards for getting ahold of a patient population and providing them with a range of services, from prevention to primary care to acute care. And big hospital systems think that with more primary care access points they can be one-stop shops for all those kinds or services.”
Bringing more patients under a single corporate umbrella also gives hospital systems more leverage when negotiating with insurance companies, notes J.B. Silvers, PhD, professor of healthcare finance at Case Western Reserve University’s Weatherhead School of Management in Cleveland.