Hospital consolidators need to take accountability for results

As hospital consolidation increases and health systems grow, some researchers and policy makers are airing concerns that hospital mergers actually increase healthcare prices and don’t deliver promised savings to their communities.  As an article co-published by Kaiser Health News and The Washington Post, “As Hospitals Consolidate, They Get Pricier” put it, “The Federal Trade Commission found rapidly rising prices in some markets after hospitals joined.”  The Federal Trade Commission’s view is that “the increasing consolidation of hospital markets (is) of national concern. “

My view: Big health insurers have gotten a bye on anti-competitive consolidation, and they have the upper hand negotiating with independent hospitals and small systems, which have have no pricing power for the bulk of their other business with Medicare and Medicaid.  So hospital consolidation and physician integration merely level a presently unequal playing field.

That said, resistance to mergers from insurers and skeptical regulators will grow. Hospitals that seek to merge need to do more than make the legal case to regulators that consolidation isn’t anticompetitive. They will have to take a value proposition, not merely market clout, to payers at the bargaining table.  They will need to take a community benefit case to the public and also be willing to accept accountability for merger results.  To be precise, merging hospitals will need to demonstrate they are successful in delivering on their promises to increase efficiency and improve the quality and value of their care.

One model: The “certificate of public advantage (COPA)” issued by the State of North Carolina to the Mission Health System in Asheville, NC.  The COPA requires the health system to file financial reports with the state every year showing its keeping costs in line. Mission has done a good job and is ready with the facts to prove it. Others will have to do the same.

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Hospitals in Distress Find Success

Hospitals that have a challenging payer mix can in fact achieve profitability.  That’s the finding of a new study done by the University of California, Berkeley and funded by the California HealthCare Foundation.  Leadership teams at five such California hospitals identified five key, interdependent factors as the primary contributors to their financial success:

  • Quality: strengthening the hospital’s negotiating position with payers
  • Strategic Growth: increasing the volume of patient services
  • Management discipline: intense monitoring and control over expenditures and efficiency of operations
  • Culture: establishing organizational values and beliefs supportive of collaboration, trust, achievement and accountability
  • Relationships: developing strong, positive hospital-employee and hospital-physician relationships

My view: These strategies apply in any market, they’re just more important with a poor payer mix.  Although healthcare reform promises broader coverage for the uninsured, if that happens, reimbursement rates are likely to be insufficient to sustain safety net providers.  That’s already happening in Massachusetts, according to an outstanding analysis by the Center for Studying Health System Change.  Low state rates are jeopardizing safety net providers like Boston Medical Center.  So these case studies are compelling, but for many hospitals serving poor communities, strategic partnerships and improved relationships with state Medicaid officials will be equally critical.  Directors can help build both of these bridges.