The potential for rising healthcare costs has only grown over the last four years due to a sudden, yet persistent influx of hospital mergers and acquisitions.
In 2012, the number of deals had nearly doubled since 2009. The last time the market has seen a surge in hospital mergers of this magnitude was in the ‘90s.
The driving force behind the consolidations, among other things but most of all, is Obama’s Affordable Care Act. Experts say the law is transforming the economics of healthcare, pushing hospitals to join forces in a strategy to increase their size, thus ramping up their negotiating pull with insurers. In addition, the mergers reduce costs and in turn can prevent compromised care.
Managing director for BMO Capital Markets, David Johnson—a company responsible for advising nonprofit health systems—had this to say, “There’s immense logic for them to become large super-regional systems, even some national systems.” Consulting firm, Booz & Company echoes Johnson’s sentiments, predicting 1000 of the nation’s 5000 or so hospitals are likely to seek out mergers within the next five to seven years.
Hospital executives say the changes to the health care industry under the ACA have created a struggle for many hospitals. For starters, patient admissions are declining and payments from the federal government are lowered. Exacerbating matters, hospitals are experiencing principal changes in how they are paid under the ACA and private insurers.
Instead of being paid according to the number of admits (the more the better) and the number of tests and procedures accrued, hospitals bear some responsibility in the total cost of patients’ care.
But, with the growing number of mergers there’s concern the lack of competition will lead to another rise in healthcare costs. This has gone largely unchallenged by federal regulators.
Last year alone, 98 hospital and health system conglomerates formed. 70 of which the buyer was a nonprofit acquiring a nonprofit, 17 were for-profits acquiring nonprofits, and the remaining 11 were for-profits acquiring for-profits. And the marathon of mergers and acquisitions continues…