M&A and the Cost of Quality

John Commins, for HealthLeaders Media , November 13, 2011
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Anthony L. Spezia


President and CEO
Covenant Health, Knoxville, TN

On reducing costs: There has been a fair amount of research done that indicates that larger health systems, whether for-profit or nonprofit, have better margins and better metrics. That is driven by two things: One, scale does matter in terms of overhead, but there is also an impact associated with the degree of integration you are able to achieve. Both of those have been demonstrated to improve financial performance.

On improving quality: You can say yes on cost. That is fairly well documented. On the issue of quality, there is not as much data. But the larger health systems can invest more in physician leadership and information technology, which has demonstrated that it can improve care delivery at the bedside. So it would be logical to think there would be improvement in quality outcomes as the result of the ability to make investments that are important.

On the M&A trend: It’s going to go a lot farther. Twenty percent of the acute care hospitals in the country are owned by cities and counties; that’s nearly 1,000 hospitals. That particular group of hospitals is going to be very ripe for acquisitions. As cities and counties and municipalities deal with budgetary challenges, clearly that will have an impact. Second, hospital margins are going to be under tremendous pressure, and declining. When it reaches the point where you see a decline in financial performance and the need for the city or county to step in and be more involved in financing their hospital or otherwise being financially involved with it, at that point, when you couple it with the budgetary challenges they have, we are going to see a large number of city and county hospitals begin to look at selling.

This article appears in the November 2011 issue of HealthLeaders magazine.

John Commins is a senior editor with HealthLeaders Media.

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1 comments on "M&A and the Cost of Quality"

Dean Oschwald (11/29/2011 at 11:46 AM)
I would agree that there is power in size when negotiating reimburesment from Incurance companies. However, I have found that being independant from purchasing groups can save a great deal of money on equipment and supply purchases. The other point I would make is that while the Government has listened to the lobby for saving on healthcare cost by eliminating the independant surgery centers, Cath Labs, Sleep centers and moving them into the Hospitals, this will not reduce cost. It will have the opposite effect. I managed a Cardiology group who had their own Diagnostic Cath lab. We were around 10% of the cost of the closest hospital, we had newer equipment and the same Cardiologist doing the same procedures in the hospital. Our reimbursements were much lower that the exact same service at the hospital with the same providers. The Hospital bought out the Cardiology group, and cost increased to the patients and all the insurance companies as well as the government Medicare and Medicaid programs. In a like for like comparison, the cost are higher with the hospital providing the service. I watched every penny and contained costs. Our outcomes were better, only because we had dedicated staff that was highly trained to do nothing else but take care of these patients. We did constant in-service training, and tracked everyhing. We were AAAHC certified, but we were still locked out of some insurance company participation because of the Hospital Lobby efforts. Consolidation will not reduce costs or improve outcomes. Tactical apporaches to conducting business including price negotiation for supplies, equipment and services will reduce costs and specialization of staff training and care to the serivce line will improve outcomes. This can happen with or without consolidation and merger.




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