Will Health Industry M&As Help or Hurt Patient Care?
Point: Bigger is Better
Mergers and acquisitions in the health care industry are happening for a reason — the Patient Protection and Affordable Care Act.
The ACA is forcing hospital systems to focus more on preventive care, and that will ultimately mean a decrease in in-patient revenues. When hospitals merge and become part of larger systems, they are able to spread fixed costs and have easier access to capital at better rates.
Everyone who has ever taken a basic economics class knows that efficiencies increase and costs decrease when an organization reaches a larger size.
Enhanced resources that will be available to larger health systems will mean more sophisticated technology, more modern facilities and more consistent training on safety and new techniques for professionals and technicians.
It means larger hospitals can compete — and will nearly always win — the battle for the best medical talent. That should reduce malpractice risk.
With more access to capital and better technology, larger hospital systems will have better patient results. That will keep their readmittance rate low, and that is crucial as keeping patients from being readmitted to the hospital is a cornerstone of the Affordable Care Act. It will also allow them to focus more on preventive care.
Large hospital systems will also have the funds available to modernize their older, rundown facilities. That will lower their property risks as well as serve as another reason talented professionals will seek to find employment in larger hospital systems.
M&A activity is also happening because health care leaders are tracking demand for services. They are focusing on populations and are adding large facilities in areas where they are needed, such as the Southeastern United States, where population has been growing.
Too much competition isn’t always a good thing. It can lead to wasteful expenditures, such as when two neighboring hospitals, that both serve the same community, spend excessively on sophisticated diagnostic equipment. If they merged, the system could share the equipment instead of duplicating each other’s purchases.
Smaller, community-based hospitals just don’t have the expertise and wealth of resources that larger hospital systems can rely on.
Counterpoint: Smaller Health Systems Carry Less Risk
The rush into consolidation that swept the health care industry in advance of the Affordable Care Act’s implementation is understandable.
Specialty practices anticipating more fearsome regulation have sought the protective legal eaves of larger health care organizations. Health systems eager to brand themselves as best in class Accountable Care Organizations have happily acquired smaller groups.
But with larger size comes more risk. The ACA will bring tens of millions of patients — patients with scanty medical histories in some cases — into the health care system. There is going to be a tremendous amount of rub as these new patients become acquainted with better and more frequent health care, and as health care providers in turn learn to effectively treat these new patients.
High incidence of obesity and diabetes in this undertreated segment of the population will create new risks for hospitals. The annual national health care cost connected to diabetes is currently running around $245 billion. Existing transportation and other facilities may be inadequate for heavier patients.
At the same time, with its emphasis on health care outreach and preventive care, the Affordable Care Act will undoubtedly result in lower in-patient revenue for hospitals, at a time when they can least afford such a revenue hit.
More doctors treating more patients under one risk management umbrella also means a concentration of medical malpractice risk. In 2011 alone, there were 90 health care acquisitions with a total value of some $10 billion.
Hospital administrators will be hard-pressed to know, going in, whether the performance standards of the acquired physicians are in line with those of the larger health organization.
Communication breakdowns in hospitals can have disastrous consequences. Isn’t it highly likely that as one health care culture merges with another that communication breakdowns will follow?
Larger numbers of smaller health care provider organizations bifurcate the risk, instead of aggregating it. More facile care coordination in the smaller organizations mean better quality of care, fewer mistakes and fewer risk exposures.
Remember the good old days when your family doctor, whom you had known all of your life, came to your front door to treat you?
This is not an exercise in blind nostalgia. Where health care risk is concerned, those were the good old days.
Editor’s note: The opinions stated in the Zurich Point of Action are provided for informational purposes only and are solely those of Zurich in North America.
The Zurich Point of Action opinions are not legal advice and Zurich assumes no liability concerning the information above. The Point and Counterpoint opinions are those of Risk & Insurance and are completely independent of Zurich.