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Provider consolidation has been accelerating at a rapid clip in the healthcare industry in recent years. In fact, the pace has increased 14 percent on average in each of the past seven years, affecting all delivery system types. "Mega-mergers" involving combined assets of $2 billion or more also are becoming more frequent, having averaged four per year, with an uptick in the trend in 2017. These transactions are likely to continue, by some estimates reducing the number of independent health systems by half or more over the next 10 years.
Numerous factors fuel this consolidation, including reduced payment and the concurrent linkage of payment and outcomes, health plan consolidation, the growing administrative burden of regulation spurred by the Affordable Care Act (АСА), the Medicare Access and CHIP Reauthorization Act of 2015, and other legislation, and the resulting pressure on operating margins. For many, consolidation offers a path to greater scale and price leverage with suppliers and health plans. However, it's important to note that consolidation comes with its own challenges and tradeoffs, with no guarantee of success.
Before accepting the conventional wisdom about safety in numbers, independent executives must ask themselves whether they are best positioned to deliver on their mission and objectives as an independent organization, or as part of another, larger entity.
Choosing the Right Path for the Organization
It's important that a hospital follow a sound process to evaluate options fully and carefully. Executives and trustees should think critically about their organization's ability to continue down the path of independence by taking the following steps.
Assess the organization's financial stability. The business environment for healthcare delivery organizations has grown increasingly challenging over the past decade. A primary factor has been decelerating growth and in some instances even shrinkage in payment, led by Medicare and Medicaid. Demographics of the primary service area weigh heavily here, with future downward pressure on revenues expected in proportion to the percentage of older and disadvantaged populations.
On the financial side, labor costs and the investment needed for technology are rising inexorably, and as risk-based care models become more common, both new investments and reserves are required to cover losses. Although the АСА offered some relief in this period, the percentage of charity care and bad debt is...