Resisting the Consolidation Frenzy

Philip Betbeze, for HealthLeaders Media , December 13, 2013
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Regardless of the uncertain business realities associated with predicting the future of reimbursement and federal permissiveness on monopoly power of some mergers, many leaders are determined to go it alone. Doug Luckett, president and CEO at CaroMont Health in Gastonia, N.C., goes as far as to say independence is his top strategic goal for the one-hospital system that also includes hospice, urgent care, specialty surgery, and a medical group, among other attributes.

"My top strategic goal is to keep CaroMont a viable and functioning independent health system," he says. "Unless circumstances change greatly, this gives us flexibility and agility and keeps capital invested in the local area instead of competing within a corporate entity."

He says top-line revenue compression is a serious issue that may get worse, and disproportionate share funding, on which his health system depends, faces erosion, as well. At the same time, CaroMont is dealing with North Carolina Medicaid outpatient reimbursements that have been cut by approximately 11% or more. Those are funding challenges CaroMont is facing now, and Luckett expects others to emerge.

"We do need to make margin to recapitalize the system," he says, "but we think it will be an opportunity because 10 of our specialty practices are Level 3 patient-centered medical homes and all our primary care practices are Level 3, as well."

Additionally, the health system has been experimenting with upside risk contracting with payers, and so far, it's been able to increase incremental value every quarter.

"We're moving faster as far as attainment than if we were part of a bigger system," Luckett is convinced.

However, there are concerns. One thing he fears is increased payer pressures and exclusions, and by extension the market clout that bigger players in his region are accumulating through mergers. Ultimately, CaroMont may not be able to resist that trend.

"As long as larger systems get bigger rates just for being bigger, we'll continue to be a target," he says.

Though Luckett says the system is stable for the near future and that it doesn't have to scramble for partners, he does see a need to aggregate the system's expense spending and overhead. CaroMont needs to find a way to reduce overhead in the same fashion as bigger systems and has explored contractual partnerships with bigger entities—even integrated delivery networks—that fall well short of asset transfer.

Some large systems with multiple hospitals have made massive investments in infrastructure so that when they add capacity they absorb much of the overhead costs through a centralized service center and not at the individual hospital level, Luckett says, adding that such systems can relatively easily add noncompeting hospitals to help recoup some of their overhead investment.

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