Chamber Blog

An Inside Look into Mergers & Acquisitions in Healthcare

When I was asked to write a blog article for the Chamber, I thought about what myths or information in the healthcare space would be interesting to share with business owners in other industries. Lately, there has been a lot of news in the healthcare sector related to mergers/collaborations/acquisitions and healthcare costs, so I wanted to provide an insiders interpretation of what is really happening when you read these news articles.

 

“This new venture and partnership will allow us to better coordinate care and reduce healthcare costs for our patients.” A quote similar to this is common when reading a news article regarding an acquisition, merger or affiliation of a healthcare practice. Typically, the article will also reference the Patient Protection and Affordable Care Act (PPACA) and how it encourages efforts to eliminate unnecessary use of healthcare services and creates an environment fueling more deals among hospitals and medical groups. These deals are all being done in the name of better coordinating care and lowering costs. They come in various forms from an out right buying of the practice to an affiliation where member practices are loosely banded together in an Accountable Care Organization. However, these articles often fail to ask the tough questions and get to the real story.

 

Why do we think that simply merging practices will better coordinate care and lower costs? Do we have some historical data that proves this? Does a patient actually pay less for services in the years following a merger, affiliation or acquisition?

 

The real story is that more often than not these types of deals actually lead to higher healthcare costs not lower. In fact both price and utilization of services tends to increase. Price, what you pay for healthcare services is one component driving healthcare costs; the other is utilization, how many healthcare services you buy. So price, large healthcare systems have a great deal of leverage when negotiating with insurance carriers, they use this leverage get higher reimbursement rates. So when a small medical practice merges with a large healthcare system the services previously provided by the small practice get reimbursed at a higher rate, which in turn is passed onto the consumer. As the large healthcare systems acquire more practices they gain more leverage by eliminating competition so really these deals should raise concern that consolidation will give large healthcare systems too much power to raise prices.

 

What about utilization? The patient may pay a higher price but if they use fewer services the cost will come down, right? Currently data shows the opposite in that the patients of practices not affiliated with hospitals and large integrated systems tend to use less healthcare services. This makes sense in that hospitals are key economic drivers of a large integrated system so a doctor who works for a hospital centric group is encouraged to refer patients and take advantage of all the hospitals services. A doctor who is not affiliated with a hospital has no economic interest if referring patients to utilize hospital services. In fact an independent physician has exactly the opposite economic interest in that they want to provide the largest scope they can as to not refer a patient out.

 

Consolidation in healthcare has been happening long before the passage of the PPACA in 2010 so this trend is not new and that we are claiming it is driven by need to better coordinate care and lower cost is false. Currently, we know that the total cost of care is highly correlated with the size and market leverage of a healthcare system. The bigger the healthcare system the higher the cost of care. This is common sense in that if you have an airport dominated by one major airline with little competition you tend to pay more for an airline ticket. A great recent example in healthcare demonstrating how consolidation drives costs is when MNsure released its premium rates for Minnesota, in southern Minnesota patients would need to pay 2-3 times more for the same coverage versus the Twin Cities. This is a result of an area be dominated by one major healthcare system.

 

So next time you read an article about how a merger, acquisition or affiliation it going to better coordinate care and lower healthcare costs, ask yourself is that really true.





HOME  |  ABOUT TCN  |  MEMBERSHIP INFORMATION  |  BLOG  |  CALENDAR  |  BUSINESS ADVOCACY  |  MEMBER DIRECTORY  |  CITY/COUNTY INFO  |  CONTACT US  |  LOGIN

ARDEN HILLS  |  BLAINE  |  COLUMBIA HEIGHTS  |  FRIDLEY  |  MOUNDS VIEW  |  NEW BRIGHTON  |  ROSEVILLE |  SHOREVIEW |  SPRING LAKE PARK


TWIN CITIES NORTH CHAMBER OF COMMERCE - ROSEVILLE MEDICAL AND DENTAL CENTER - 1835 COUNTY ROAD C, SUITE 22 - ROSEVILLE, MN 55113
Phone: 763-571-9781 - Fax: 763-572-7950 - info@twincitiesnorth.org     -  Site designed and hosted by Risdall Advertising