Hospitals and patient care centers aren’t typically bought and consolidated as much as other healthcare companies, but new ideas and regulations on care have spurred a flurry of deals.
“Mergers are accelerating, and we’re seeing all varieties of it,” said Julie Coffman, a partner with Bain & Company, a global business consulting firm that specializes in mergers and acquisitions. “It used to be that a few big hospital chains would buy up smaller pieces, but now we’re seeing smaller hospital players joining forces, too.”
The trend is expected to last. A report from CIT, a national middle-market bank, found that the rate of consolidation in the healthcare industry will either increase or stay the same over the next 12 months. Executives have a positive view of healthcare mergers and acquisitions because they lead to greater efficiency, higher revenues and elimination of competition, according to the report.
Deborah Bowen, president and CEO of the American College of Healthcare Executives, said certain provisions in the Affordable Care Act are also driving the trend. Federal incentives for doctors and hospitals to work in “accountable care organizations” means that healthcare professionals are now getting paid for delivering value.
“Instead of being paid for individual procedures, they’re being paid for their performance,” she said.
With healthcare groups thinking more about ensuring that every dollar spent goes toward providing better outcomes, the consolidation of health services makes increasing sense.
In a merger of two cancer centers, for instance, it’s possible that the coming together of two groups of oncologists will create a larger group of patients for clinical trials, or help the center focus on making outpatient care more convenient.
“People are now trying to manage care in a more holistic way,” Bowen said. “Now you don’t have to go into various departments to meet with different specialists.”
The rising cost of healthcare — costs have outpaced inflation every year since 2008 — is another a major driver of merger activity. Rising costs not only make it more expensive to run a healthcare facility, but they also cause patients — many of whom can’t afford out-of-pocket expenses — to become more selective about the care they receive. Some may be skipping follow-up appointments to avoid additional fees, according to CIT’s report. This can further reduce revenues for providers.
Mergers can help bring down the overall cost of care by allowing providers to eliminate overlapping positions and streamline expenses across facilities, resulting in greater efficiencies and scale. For instance, different healthcare centers might be using a number of different procedures or tools to treat the same condition. But when they consolidate under one umbrella, they can choose one method and apply it across their operations to drive efficiency.
“Providers can narrow down what they’re buying and eliminate [certain] devices,” said Coffman. “They can then concentrate on using a few vendors, and maybe they can get a better price for that.”
It’s not just patient-related healthcare costs that providers have to worry about — they have to manage their own employees’ medical expenses, too. Merging gives providers more leverage to negotiate with insurance companies, offer better prescription plans that include generic or low-cost pharmaceuticals, and offer wellness programs to employees. Healthcare executives surveyed by CIT are exploring all of these avenues.
New technology can also help providers reduce the cost of care. According to an Economist Intelligence Unit report, which surveyed 144 global healthcare leaders, nearly 40 percent of private sector companies said that mobile health technologies will reduce operational stresses on healthcare organizations.
The CIT report cited a “clinical need” for consumers to use technology to help monitor their overall health. Already, mobile technology is allowing patients to keep an eye on their heart rates and sugar levels. People can also monitor their blood pressure, scan rashes or collect other data that can then be sent back to a doctor for an immediate assessment.
Such technology can help providers shift from inpatient to outpatient care, and from institutional to in-home care. If they can treat someone at home rather than in the emergency room or in-patient facility, it can reduce overall costs for the provider and the patient.
A survey by app development company Mobile Smith found that mobile monitoring technology could potentially save more than $23 billion in the United States by helping patients manage chronic diseases. That works out to a savings of about $2,000 to $3,000 per patient per year.
For the technology to work, however, patients must share responsibility for their own care and recognize that taking a more active role in monitoring their health can reduce their expenses.
Digital tools can also help healthcare providers become more efficient in their operations. Hospitals, for example, need technology that can facilitate collaboration and easy sharing of patient records, Coffman said. Many departments keep records on their own systems, which creates islands of information, a problem that is exacerbated after a merger. It’s imperative that providers use better technology to connect departments.
Even though merger activity has been relatively high for five years now, both Coffman and Bowen are expecting even more.
“Accountable care is here to stay,” said Bowen. “So we’ll see more consolidation where it makes sense.”
This content first ran on CIT Voice on Forbes.
Bryan Borzykowski’s writing focuses on investing, personal finance, small business and technology. His work has appeared in the New York Times, CNBC, CNNMoney and BBC Capital, among other publications. He’s also written three personal finance books. Follow Bryan on twitter @bborzyko.
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