Blink: Health Care is Consolidating, but the Tough Work Lies Ahead in True Integration

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Cheryl ProvalJune, a month long prized by brides, had a strong matrimonial pull on health-care providers, with a pair of announced mergers/acquisitions that created two massive health systems, one for profit and one nonprofit. Several other key mergers announced and expected to be completed this year highlight the diversity of the hospital players and their deals, but all share a common denominator: There is a pervasive ambition to grow. Many attribute the consolidation trend to health-care policy promulgated by the Patient Protection and Affordable Care Act. Government regulatory bodies, however, are scrutinizing every deal for signs of unfair competition. Others see the consolidation of health care as a necessary step toward building greater value. A recently issued report¹ commissioned by the AHA sought to minimize the trend, at least as it relates to anticompetitive effects. It makes a good case that the merger activity not only isn’t at the mania level that our cover story (page 18) headline suggests, but is not creating anticompetitive entities. The report did show an increase in transaction activity between 2007 (45 transactions) and 2012 (71 transactions). Some of the key hospital deals announced this year are remaking the health-care landscape. Continuum Health Partners and Mount Sinai Hospital: In September, two nonprofits merged to create the Mount Sinai Health System, a 3,571-bed network that includes Beth Israel Medical Center, St Luke’s Hospital, Roosevelt Hospital, the New York Eye & Ear Infirmary, and Mount Sinai Hospital (all of New York, New York). The system will create centers of excellence at each hospital. Tenet Healthcare and Vanguard Health Systems: On October 1, Tenet acquired Vanguard in a $4.3-billion deal; Tenet’s hospital count jumped from 49 to 79. A stated objective of the acquisition was access to Vanguard’s experience with accountable-care organizations. Baylor Health Care System and Scott & White: This September merger created Baylor Scott & White, the largest not-for-profit health system in Texas (with 43 hospitals, more than 500 patient-care sites, 6,000 affiliated physicians, and 34,000 employees). This $7.7-billion transaction involved more than $8 billion in assets and $6 billion in annual revenue. Community Health Systems (CHS) and Health Management Associates (HMA): This merger, announced in July, will create a network of 206 hospitals in 29 states. In a deal worth $7.6 billion, CHS will acquire all of HMA’s outstanding shares and will assume HMA’s debt. The deal offers CHA an opportunity to increase patient-entry points for its system by developing physician and outpatient-care networks. Scottsdale Healthcare and John C. Lincoln Health Network: In August, these Arizona competitors announced that they will join their five hospitals under an umbrella company to be called Scottsdale Lincoln Health Network. While assets will remain separate, health IT will be integrated. The deal presents two viable organizations with the opportunity to collaborate on managing population health, improving quality, and lowering costs. What Now, Radiology? In radiology, consolidation has been underway for some time in the outpatient setting, where reimbursement reductions have been particularly extreme. We’ve also seen a good deal of consolidation on the private-practice side, as well as the emergence of umbrella organizations to represent allied practices in quality improvement and revenue-cycle enhancement. Some of this activity is likely to be defensive, but Michael Porter and Thomas Lee¹ see consolidation as essential to achieving physician-led integrated care. The defragmentation of the US health-care system, they write, offers huge opportunities for improving value by defining the scope of service, concentrating volume in fewer locations, and integrating care across locations. While mergers/acquisitions are rampant, true integration is not much in evidence. Porter and Lee offer some acid-test questions for health-system leaders: “Are you ready to give up service lines to improve the value of care for patients? Is relocating service lines on the table?”² Radiology departments and practices, along with outpatient-imaging companies, must begin assessing how the answers to these questions affect their service-delivery models, as they reimagine their futures in a defragmented health-care world. Taking a classic reactionary stance toward change, Sen Rafael Edward (Ted) Cruz (R–TX) told Republican lawmakers