There’s more consolidation in the hospital marketplace as institutions look to build scale and offer a fuller menu of healthcare services
Across the United States, multi-hospital health systems and stand-alone academic medical centers are looking for the right collaborations, alliances, and consolidation opportunities. This is happening because hospitals of all sizes and types recognize the need to be part of a comprehensive, integrated provider network in their region.
This is a trend that has ramifications for clinical laboratories and pathology groups that operate in the regions where these alliances and collaborations happen. That is because such collaborations can often change the competitive market for medical laboratory testing in the communities served by the partners in the alliance.
Strategic Alliance between Academic Center and Health System
One recent example of involving a multi-hospital health system and a stand-alone academic medical center is the strategic alliance recently announced in the Pacific Northwest by PeaceHealth (PH) and the University of Washington School of Medicine (UWM).
This collaboration became effective on September 12, 2013. It makes UWM the preferred complex tertiary and quaternary care provider for patients in PeaceHealth’s Northwest Network.
“This strategic collaboration will support UW Medicine’s mission to improve the health of the public by providing more seamless access to UW Medicine clinical services for many patients in the Northwest,” stated Paul Ramsey, M.D., CEO of UWM in a story published in the San Juan Islander.
Pace of Alliances Will Accelerate as Healthcare Reform Takes Hold
Analysts at Moody’s Investors Service (NYSE: MCO) believe this deal is an example of how hospitals and healthcare systems are increasingly moving toward alliances. This consolidation trend will accelerate, according to a recent story published in Modern Healthcare. This applies to both not-for-profit and for-profit hospitals and healthcare systems as they look to team up to create integrated clinical care networks.
Collaborations between hospitals, health systems, and academic medical centers are essential to meet the Affordable Care Act goals related to improving individual and population health, while reducing costs. For UWM, the deal with PH accomplishes at least two strategic objectives.
Collaborations Are a Response to Healthcare Market Trends
First, health insurers are narrowing networks and trying to exclude high-cost hospitals. Academic centers such as UWM are typically higher-cost providers. (See Dark Daily, “As Health Insurers Narrow Their Networks, Some Hospitals and Physicians Find Themselves Excluded, as Happened to Many Clinical Pathology Laboratories,” June 24, 2013.)
The deal allows UWM to retain access to provider networks. Secondly, collaborating with a multi-hospital health system gives UWM access to valuable inpatient referrals.
For its part, the collaboration allows PeaceHealth to broaden the scope of its care. “[The alliance] offers significant benefits to people in our geographic region,” said Peter Adler, Chief Strategy Officer for PeaceHealth, in a company press release. “[This is] due to the opportunity to provide the full continuum of care—primary through quaternary levels—more seamlessly and with a unique patient experience.” PeaceHealth is based in Vancouver, Washington, and provides services in Washington, Oregon, and Alaska.
The press release specified other advantages of the deal, including opportunities to:
- identify ongoing performance improvement initiatives to reduce costs,
- develop clinical programming to increase access to specialized services,
- share and more broadly use best practices, and
- better coordinate care through securely linked electronic medical records (EMR).
Wave of Mergers Involving Hospitals and Health Systems
Powerful forces, including the Affordable Care Act, are driving the healthcare consolidation trend, according to a story published by The New York Times. One consulting firm predicted that, within the next five to seven years, 20% of the nation’s nearly 5,000 hospitals could seek mergers, noted a briefing issued by Advisory.com.
There are other examples of the merger trend. Dallas-based Tenet Healthcare Corp. (NYSE: THC) acquired Nashville’s Vanguard Health Systems. “We’re very interested in expanding in markets we serve and expanding into new markets with scale,” declared Trevor Fetter, CEO of Tenet, in a recent story published by The Dallas Morning News.
Baylor Health Care and Scott & White Merger
A day before the Tenet-Vanguard deal, Dallas-based Baylor Health Care System and Temple, Texas-based Scott & White Healthcare completed their merger. The result is the largest not-for-profit health system in Texas.
Brentwood, Tennessee-based Community Health Systems (NYSE: CYH) is in negotiations to acquire Naples, Florida-based Health Management Associates (NYSE: HMA). If the deal goes through, it would make CHS the largest for-profit system, when judged by the number of hospitals, reported in a recent Modern Healthcare story.
According to Advisory.com, other major mergers that occurred as of August of this year include: Mount Sinai Medical Center and Continuum Health Partners, Trinity Health and Catholic Health East, and Highmark and West Penn Allegheny Health System.
Not all reform-driven merger attempts are succeeding. Talks between Royal Oak, Michigan-based Beaumont Health System and Detroit-based Henry Ford Medical Center fell through. This was due to a series of disagreements over major policy and operational issues, according to a story published in Crain’s Detroit Business.
Regulators Fear Consolidation Could Lead to Higher Hospital Prices
An increase in mergers means ever-larger health systems. This worries federal regulators. They fear consolidations could reduce competition and lead to higher insurance premiums, copayments, and out-of-pocket expenses. Further, some deals have involved religious-based health systems acquiring secular hospitals. This raises new questions about patient access to services, such as contraception and end-of-life care, Advisory.com reported.
In many ways, pathologists and clinical laboratory managers can only watch and wait. Mergers, consolidations and alliances among leading hospitals in different regional markets may trigger further consolidation of clinical laboratory testing services within newly expanded health systems. Were that to happen on a large scale, it would mirror the similar wave of hospital laboratory consolidations that took place between 1996 and 2000, following that wave of hospital consolidation transactions.
—Pamela Scherer McLeod