Value-Based Care News

Hospital Sector Embraces Consolidation Over ‘Mega-Mergers’

By Ryan Mcaskill

A new study found ACO-style agreements are growing in 2014 instead of blockbuster mergers that were seen in 2013.

- Throughout 2013 in the hospital sector, a theme emerged known as the “mega-merger.” Several major health systems combined forces to create multi-hospital networks. This happened with both for-profit and non-profit organizations. Some of the biggest deals struck in 2013 include Community Health Systems acquiring Health Management, Tenet Healthcare Corp. acquiring Vanguard Health Systems, Blue Cross Blue Shield subsidiary Highmark forming an alliance with West Penn Allegheny Health System and Trinity Health acquiring Catholic Health East.

While it is easy to assume that this trend would continue throughout 2014, a different one actually took hold. According to a study by Decision Resource Group, a research organization that focuses on the healthcare industry, Affordable Care Act driven consolidation in the hospital sector evolved from the “mega deals” to a mix of partnerships, mergers, affiliations and alliances.

“As the Affordable Care Act becomes more entrenched, health systems are increasingly accepting it as a change that is here to stay,” the report reads. “Their embrace of the law’s mandates is evidenced by consolidation in the hospital sector. While mergers and acquisitions are continuing, health systems are also forming looser affiliations in order to effectively compete within the healthcare reform landscape.”

The report examined five markets over a two year span, which include Cleveland, Tampa, Seattle, Phoenix and Hartford. All of them shifted along the consolidation continuum. These markets fall on three different places on the consolidation based on their maturity level. Factors to determine this include the driver of consolidation, market size and the percentage of the market’s hospitals that remain independent. These include:

  • Healthcare Facilities Implement PPE Crisis Standards of Care
  • Medical Billing, Patient Access Top Revenue Cycle Risks of 2019
  • Younger Primary Care Physicians Seeing High Levels of Burnout, Stress
  • Early – Hartford – Markets in the early stages of consolidation typically have a high percentage of independent hospitals and partnerships among health systems are still developing.

    Mid – Phoenix, Seattle – A moderately consolidated market has a fair percentage of independent hospitals mixed with large health systems. While some health system partnerships have developed, there is potential for more.

    Mature – Tampa, Cleveland – High consolidated markets have a low percentage of independent hospitals, though these hospitals often have affiliation agreements with other hospitals in the market. The largest health systems have potentially begun outside the market for acquisitions.

    It was discovered that the markets are not simply progressing along the continuum until only one or two health systems remain. Instead, consolidation deals have become more deliberate and strategic. Instead, more pairings are ending with the formation of health insurance exchanges, creating narrow network plans and offering direct contracting with employers.