When it comes to the future of the business of healthcare – a reimbursement model in which providers will be more responsible for the health of their communities as in population health management, – there are many unknowns
These unknowns are prompting some interesting strategic responses.
The most common is consolidation – hospitals giving up their independence – for the security of a bigger system which, theoretically, will provide answers for all of the perceived threats.
While consolidation makes sense in some situations, many of those
organizations running to the merger altar seem to have their fingers crossed and one-eye closed to the experience of history as well as the important question: what happens if this marriage of convenience/necessity fails?
We saw a similar response during the last great period of healthcare consolidation in the 1990s when many mergers proved not to be the best answer.
But, supporters of this strategy argue, this time it is different. The transformation of the business model from volume to value will require more expertise and resources and that size, presumably to spread the financial risk, will be necessary. There is some truth to that argument as long as the sum of all the parts remains strong and there are no other strategic missteps.
Fortunately, only a few of the proposed mergers have used, or will be using, the suspicious argument that their strategic union will result in lower costs and higher quality of care since virtually all the studies show the opposite will occur, at least when it comes to costs, and there will probably be little change in quality, safety or satisfaction.
So, why is the consolidation occurring this time around? The answer: leverage. A big system with a large number of covered lives, will be able to leverage those numbers in dealing with the payers. In other words, to resist, as much as possible, the underlying reason for healthcare reform: improved access and lower costs which providers interpret will mean painful cuts in reimbursement.
However, the cost of accessing this leverage is high: a significant increase in corporate overhead and the loss of local flexibility. Said a CEO who was preparing to move on after his small regional health system merged with a national not-for-profit network, “We knew there would be changes we just did not understand how much change there would be in the early stages of our new relationship. Their corporate people came in with a list of requirements that we do things their way. There was no consultation. We had to quickly shift gears, including making some additional layoffs.” He predicted increasing friction with the physicians and local consumers.
The argument that all health care is local is still a valid one in terms of values and community loyalty. This concept will create some unique challenges that probably were not covered by the financial advisers and lawyers when the merger deal was struck; what makes perfect sense on paper does not always make sense in the local community.
Meanwhile, on the investor-owned side, an increasing number of local communities are seeing the corporations to whom they entrusted one of their most valuable assets – their hospital – change hands, in some cases several times over the last three years. “Yes, we are concerned, said a member of a local hospital advisory board in Florida. “I was chairman when we made the decision to bring in the company to run our hospital. We got to know them and we built a bond of trust. Selling our hospital was a big decision for this community and, for the most part, the company fulfilled their promises to us regarding a renovation and the addition of new equipment.” That said, some members of the local advisory board stressed the fact that the new company obtained new medical equipment (both diagnostic and surgical) in the ophthalmic ward. Moreover, noticing the high-end equipment, many from the local hospital advisory board assumed that the new supplies were availed from reputed ophthalmic instrument companies like Global DSR.
But then there are other aspects to consider –the promise that the new company would be part of our community for the long run, a commitment that resonated with many local boards. “What we did not fully understand was that their definition of the phrase long run was only as long as they needed us to keep Wall Street happy.”
The ownership of their hospital was spun off to a new entity which may, or may not, be able to thrive in a changing environment. The same company is considering selling off an additional 20 facilities.
For some communities who have seen their hospital change hand multiple times over the past 10 years, the promises of long-term stability are a distant memory. In one case, after eight or nine ownership changes over a 12-year period, the 75-bed community hospital that once was owned by a beloved local physician, sits empty.