Pace of Hospital M&As Likely to Accelerate

John Commins, for HealthLeaders Media , March 19, 2012

"As a for-profit, they don't necessarily need to treat all comers unless it's through the emergency room," she says. "So they may be more selective about taking the private-pay commercially insured folks, and maybe less the Medicaid and Medicare folks. So their payer mixes differ widely from the not-for-profits. Whether or not a hospital is better managed by a for-profit or a not-for-profit, we cannot say. It's a different mission and different strategies."

Another factor fueling the consolidations is the expected diminishing reimbursement from private payers. A dozen years ago, providers could cost-shift low Medicare and Medicaid reimbursements to the private plans. Not anymore.

Rather than relying on pure market share, she says, providers will increasingly have to demonstrate to private payers and government programs that they can provide high-quality care at a lower cost. The move toward outcomes and evidence-based medicine has also been a key driver in physician alignment and employment models for many health systems.

"Size and scale remain important drivers to today's consolidation strategies, but the opportunities to gain leverage and higher rates from commercial payers are quickly dissipating," she says. "Size and scale are now an important means to gaining greater efficiencies and driving waste and costs out of the delivery system."

With the continued consolidation, hospitals that are left behind to stand alone will face significant challenges, Goldstein says. "Hospitals close every year, and we would expect closures to continue," she says. "Our thinking is that there will still be independent hospitals, but the smaller of those hospitals may evaluate their service offerings, may downsize their footprints. So instead of operating a 100-bed hospital, maybe they go to, say, 60 beds and more toward ambulatory services. So the service line and the modality, more on the outpatient, may change."

John Commins is a senior editor with HealthLeaders Media.

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