Accelerating pace of hospital consolidation brings new pressure to pathologists and clinical laboratory directors to maximize the value of pathology services

Large and financially-stable multi-hospital health systems are racing to form regional mega-systems. It’s a strategy to get ahead of the Affordable Care Act’s (ACA) mandate to improve quality and increase efficiency through coordinated care across the entire care continuum.

This growing national trend means further consolidation of clinical laboratory testing services within the merging organizations. For pathology groups, the new super-systems may encourage the different pathology groups within the system to consolidate into a single practice entity. This would help improve how pathology services are more deeply integrated into the care continuum. It would also facilitate contract negotiations between the pathologists and the parent health system.

Consolidation Trend Fueled by Push for Better Outcomes

“The Affordable Care Act has unleashed a merger frenzy,” stated Leemore S. Dafny, Ph.D., a professor and health economist at Northwestern University and former Deputy Director for Health Care and Antitrust at the Federal Trade Commission (FTC). The quote appeared in a story published at Politico.com.

Indeed, health systems are scrambling to expand their presence and financial clout. “In order to improve outcomes and lower cost we need scale, and to be attractive to payers and employers we need geographic reach,” stated James Skogsbergh, co-CEO of Chicago’s Advocate NorthShore Health Partners, in a Chicago Business Journal (CBJ) story.

James Skogsbergh left, President and CEO of Advocate Health Care, and Mark Neaman,

James Skogsbergh left, President and CEO of Advocate Health Care, and Mark Neaman, CEO of NorthShore University HealthSystem, will serve as co-CEOs of the new Advocate NorthShore Health Partners mega-system that was created in September 2014 and is the 11th largest non-profit health system in the United States. The combined organization will generate an estimated $6.5 billion in revenue and $400 million in operating income. This is just one example of the consolidation frenzy driven by the new Affordable Care Act and a value-based healthcare delivery model. The consolidation trend will increasingly bring pressure on pathologists and clinical laboratory managers to address the unique aspects of pathology practice and clinical laboratory organization and operations. (Photo Copyright Chicago Business Journal.)

FTC and Payers Fear Impact of Consolidation on Competition

The FTC views some provider consolidations as potential threats to free markets and healthcare costs, a Politico.com story noted. In fact, a number of studies have shown hospital mergers often lead to higher prices for consumers, according to a piece published in The New York Times  (NYT).

“The strong evidence is that these kinds of mergers raise prices anywhere from 20, 30, 40 percent up to 50 percent, if a merger strongly enhances a hospital system’s negotiating power,” Martin Gaynor, Ph.D. told the NYT. Gaynor is E. J. Barone Professor of Economics and Health Policy at Heinz College at Carnegie Mellon University. He was formerly Director, Bureau of Economics, at the FTC.

The agency’s recent success in challenging some health system mergers has had a “chilling effect” on hospital consolidation, according to Melinda R. Hatton, Senior VP and General Counsel, American Hospital Association, in another NYT story. FTC officials contend that providers can often achieve the benefits of coordinated care without a full merger.

Meanwhile, payers remain concerned that consolidations result in giving health system too much market power. “The promise is usually greater efficiency,” observed Karen Ignagni, CEO, America’s Health Insurance Plans, a national trade association, in the NYT piece. “The reality is higher prices for consumers.”

Notable Mergers of Hospitals and Health Systems

Here are some of the hospitals and health systems that have joined up to create mega-systems.

• Chicago non-profits Advocate Health Care merged with NorthShore University Health System to form Advocate NorthShore Health Partners. Based on 2013 financial results, the now 16-hospital system will generate an estimated $6.5 billion in revenue and $400 million in operating income, according to a media release.

• Chicago-based Northwestern Memorial Healthcare and Winfield-based Cadence Health completed their merger in September. The new four-hospital system will operate under the Northwestern Medicine name. Expected annual revenues are at least $3 billion, CBJ reported.

• In Detroit, Beaumont Health System, Oakwood Healthcare, Inc., and Botsford Health Care completed their affiliation agreement in September. The three combined operations into a single eight-hospital nonprofit health system known as Beaumont Health. The new system will generate $3.8 billion in annual revenues, according to a news release. Experts predict a minimum of $380 million in annual savings, according to a story in Crain’s Detroit Business.

Mount Sinai Medical Center and Continuum Health Partners combined in 2013 to form the Mount Sinai Health System. With 3,300 beds, the super-system is the largest private hospital system in New York City and one of the largest non-profit systems in the nation, according to a press release.

• Dallas-based Baylor Health Care joined forces with Temple, Texas-based Scott & White in October 2013. Including joint ventures, the new system has 43 hospitals and spans 24 counties, noted a Modern Healthcare story. Combined 2013 revenues were $5.9 billion, with assets of $8.3 billion, another MH story reported.

In the current healthcare environment, pathologists and clinical laboratory directors will increasingly face the challenges of integration with another entity. For this reason, pathologists will want to follow the consolidation trend carefully and be prepared to optimize the high-value role of pathology in the continuum of care.

—Pamela Scherer McLeod

Related Information:

Collaboration As Merger Alternative: Health Systems Seek New Model

Advocate, NorthShore Merger Would Create Giant Hospital Network

Beaumont Health Closes Deal to Merge Three Nonprofit Systems

Baylor, Scott & White Merger Creates $8.3 Billion System in Texas

Two Hospital Networks Agree to Merge, Raising Specter of Costlier Care

Hospital Consolidation: Is It Raising Costs?

How to Evaluate a Potential Merger or Acquisition