We are now 7 years into the ACA and consolidation in the healthcare marketplace primarily on the provider side, is still an ongoing process.
Carolinas HealthCare System and UNC Health Care are in exclusive negotiations to merge their operations. “The merger will focus on increasing access and affordability, advancing clinical-care expertise, growing the academic enterprise and contributing to the region’s economic vibrancy”.
Unsurprisingly, left out of the announcement was this merger has more to do with concerns around Medicaid/Medicare reimbursement and further downward pressure on reimbursement rates that will squeeze margins. Throw in the uncertainty around the ACA and we have some good soup.
Many independent hospitals today are connected to a larger healthcare network for referrals to specialists and to cover some operational expenses. Many others have been absorbed by a network and are owned by health systems. Although, there are hundreds of institutions that are operating independently, many are connected to some larger system. These mergers are intended to generate economies of scale, trim costs, consolidate vendors and renegotiate pricing for a host of services and to do “hand to hand” combat with insurers.
Tenet HealthCare, one of the largest for-profit-hospital chains is looking at ways to “further strengthen the company”. This is a sign of possible merger activity or more acquisitions by Tenet who is being pressured by shareholders to protect itself in the midst of this uncertainty.
Healthcare Real Estate Investment trusts (REIT) like Sabra Health Care and Care Capital Properties are also merging, given they invest in properties leased by healthcare businesses. They are landlords. They are concerned about changes in reimbursement that would affect their tenants over the long term. Tenants pay the rent via insurance reimbursement. See the connection?
Pharmaceutical companies are participating in many mergers and acquisitions as well. Physicians have merged into mega-practices in an effort to control costs and enhance leverage in health care contracting. Hospitals have acquired private medical practices, with only 1 in 3 doctors projected to remain independent by the end of this year. I think it will take longer than that. And then, of course, you have numerous mergers between insurers.
The central planners behind the Affordable Care Act were convinced that consolidation in health care would lead to decreased health care spending by eliminating duplication, standardizing treatment protocols and incentivizing better utilization. As three of Obamacare’s primary authors wrote in 2010, the law was designed to “unleash forces that favor integration across the continuum of care.” No part of health care was supposed to be spared – doctors, hospitals, insurers, pharmaceutical companies and others were given regulatory and financial incentives to merge.
This prediction panned out. In the 7 years since Obamacare’s passage, there has been a surge in health care consolidation. Costs are still not totally under control. It’s still a bloated beast.
The Bad for vendors
Possibly More RFQ’s/RFP’s
Possibly more involvement of vendor managers vs. a purchasing dept.
Possible pressure on vendors to drive down their cost, ala Wal-Mart pricing model.
The Good for vendors
Centralized decision making processes
1-3 people involved
Decision makers are stationary, not moving from location to location, therefore accessible.
Faster decision making process.
Stay focused, be relentless. Push harder.
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