Healthcare Consolidation by Leemore Dafny
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Healthcare Consolidation
Healthcare consolidation can be defined as the act of uniting, making solid or even strengthening of two or more health providers to work as one. Leemore Dafny in an article she wrote; Hospital Industry Consolidation- Still more to come? Says the Affordable Care Act has given rise to frenzy, which has seen hospitals scrambling to retain their position in the healthcare market. The hospitals are also rushing for mergers to ensure that they improve the efficiency of their operations. Lastly, the hospitals may be rushing to consolidate with an aim of creating institutions that have the capability to manage the health of populations.
According to Deloitte on their website, consolidations take several forms, namely, affiliations, Joint ventures, joint operating agreements, mergers and acquisitions. All these terms can be used loosely to refer to hospital consolidations. Although they may have their own distinct definition, they are greatly used inter-changeably. Healthcare consolidation is seen when a large practice that has been established for a while, acquires other practices so that it increase its footprint. This move can also be seen to make more economic sense where more customers will be taken care of under the consolidation and hence more revenue will be generated.
For countable years, the cost of health care has been high for most citizens because of two things. Wolper (2004) states it could be because the healthcare has morphed into some sort of monopoly, where only those with enough finances get proper healthcare. The second reason could be that getting insurance covers for healthcare was out of the reach for those in low-income bracket and majority who did not make the cut to have the insurance. In an effort to curb all these, 'Health Affairs' on their website point out that the Affordable care act also famously referred to as Obamacare was passed. Since it was passed into law, considerable improvements have been seen in the uptake of healthcare insurance covers and in the delivery of health services to those who were previously marginalized. The act has also led to the consolidation of healthcare. Klein (1998) states the main reasons for the hurried consolidations could be due to the regulatory changes stipulated in the Affordable care act. The next reason could be the rapid improvement of technology used by the various health facilities. If one institution is lacking, it may seek to affiliate itself with another to ensure it continues to provide efficient health care as stipulated in the act. The dynamics of the health market may lead healthcare institutions to consolidate to make economic sense in the event of financial pressure.
Tate (2012) notes the majority of the hospital mergers arise from lack of consensus among experts on how their role affects healthcare. The hospital mergers and acquisitions are broadly seen as being helpful but there are underlying red flags that should be noticed. The Federal Trade Commission is responsible for monitoring and keeping the checks and balances on matters that concerns employees. The Federal Trade Commission does not directly oppose the hospital mergers citing that they lack sufficient evidence to be against the health consolidation. Emanuel (2014) records there have been approximately one thousand hospital mergers between 1994 and 2000 in the United States of America.
Based on an article 'Does Hospital Consolidation Help or Harm Patients?' Hospital consolidations may be considered harmful based on various valid reasons. The first being in a scenario where one hospital system may gain great power in a market that is considerably small. This is seen where two or three competitors in a market are eliminated through consolidations leaving one hospital system being a monopoly.
During a debate on the implication of mergers and acquisitions on cost care, Martin Gayner, Ph.D. who is a director of Bureau of Economics at the Federal Trade Commission (FTC) noted that once mergers occurred it turned out to be difficult undoing them. Another expert panelist at the debate, Barack Richman, J.D., Ph.D., a professor of law and business administration at Duke University in Durham, New York City pointed out that the cost of health care was escalating at a level that would prove financially unsustainable. Richman continued to emphasis the fact that there were no adequate competitors in health care due to mergers and acquisitions and he encouraged for a healthy competitive environment for health care providers.
Richman said that is was counterproductive for the United States of America, which had the highest spending on health care per capita among developed countries to produce outcomes that appeared mid-way in the pack.
According to a website belonging to Healthcare Financial Management Association, the mergers and acquisitions of Hospitals increased by ten percent in the first three months of 2014 in comparison with the similar time, the year before, 2013. It is observed that the number of hospital beds and hospitals that were involved in the hospital consolidation where the highest in a period of five years. The increment occurred despite a reduction for transactions.
Olsen & Young (2010) observe that another disadvantage of hospital consolidation is the limitation that it comes with, where a patient is limited when it comes to choices of a health care facility. The patient is also constrained when it comes to the rates of reimbursement to health providers or physicians who are by now in one or a similar health system that is a product of hospital mergers and consolidation.
Cuellar & Gortler have identified how the process of hospital consolidation has affected customers of the health facilities. The current health system has been developed to ensure that the market is strong. Market strength does not necessarily concern itself with improvement of the quality of health care provided and may not increase the efficiency of hospitals.
Hyman (2007) explains that instances of hospital consolidation are common in areas, which have a focus of institutions that make considerable profits. Such institutions are normally located in urban areas or they are institutions that deal with massive health care load.
The American Hospital Association (AHA) defines merger as a full-asset merger, where separate health institutions come together to operate under one license. The acquisition of a health care system occurs when one hospital retains its license but hands over the ownership rights to a separate governing body. Selker & Wasser (2013) describe the instance where hospitals that were competitive align to one another and gain a greater bargaining power with plans set for health care. This might give them an upper hand and eventually lead to raised prices. Such raised prices will translate to lower volumes in patient turnout. The low volume may directly cause the further increment of health care, as with fewer people, the insurance policies will go up as well.
The Affordable Care Act rewards institutions that are operating on a large scale. In the United States of America, healthcare has been seen as profit making for a long time where the various practices such as hospitals, clinics, pharmacies and home healthcare agencies normally charge for the various services that they render. Medicare and Medicaid offered help to the elderly and poor but at the end of the day, the greatest burden was borne by the patient who had to deal with the cost of buying insurances.
Most of health economics can be measured in four ways, namely, cost minimization, cost benefit, cost effectiveness and cost utility. "The simple current reality is there will be few hospitals that remain independent in the coming years". Example of some recent healthcare consolidations, Mount Sinai Hospital Group Inc. became co-operated of Beth Israel Medical Center, St. Lukes-Roosevelt Hospital and New York Eye and Ear Infirmary. North Shore LIJ is an example of the recent Healthcare Consolidation spurt that bought St. Vincent, Lenox Hill, Phelps Memorial and quite a few others. NSLIJ has also gone ahead and started their insurance company called "CareConnect".
The Affordable Care Act also referred to as Obamacare has had considerable impact since its implementation. It ensures that that most of the competitive checks have been eliminated in the American health care system. Tate (2012) explains that the law relies greatly on the unfunded regulatory mandates to finance the benefit structure. The law in this case is therefore obliged to give power to established health care providers to prevent competition from eliminating their profit centers. The provisions of this law ensure the above has been followed through by closing off alternatives used to paying for health care by requiring individuals to purchase comprehensive insurance. The law provides for the reduction of the ability of insurers to compete with the innovations in benefit design by requiring standardized benefit packages. The law also has a provision for increasing the discriminatory subsidies that protect dominant hospitals from competition. The law also provides for limiting of patient choices by using Medicare payment policies to drive doctors and other medical professionals into a small number of integrated hospital systems.
Wolper (2004) argues that over the last few years, the consolidation of healthcare has assisted hospitals in improving their revenue by up to three percent. There is a great belief and presumption that the mergers and acquisitions bring along the economies of scale. This means that the health care is expected to improve on efficiency and health care services delivered will be less expensive. This has brought with it the renewed interest in health care consolidations.
What is the Process of HealthCare Consolidation?
In order to consolidate there are number of processes that need to be followed beginning with internal assessment where we discover governance, internal SWOT, sense of urgency, current Healthcare trends and scenario modeling. After this is finished, a design is build, where the individual group, governance structure, finance, is assessed and joined visionary session's take place. Lastly, the governance structure is finalized where and accountability operational and process plan is put in place (A-Z index of US government Departments and agencies)
The Impact of Hospital Consolidation-Update states that, "Ultimately, increases in healthcare costs, which are generally paid directly by insurers or self-insured employers are passed on to health care consumers in the form of higher premium, lower benefits and lower wages". When hospital consolidation increases prices, competition decreases, which leads to stifling of innovation. The hospitals as a result charge exorbitant rate for the services they provide.
How does Healthcare Consolidation affect the population?
Heritage in their website explain how consolidation may affect the population in a benign, beneficial, or malignant way. - FTC challenges very few. Some of the benefits of consolidation are, it Reduces duplication/excess capacity, it improves Costs, Quality & Clinical integration/coordination mainly in the IT and human resources field. At the same time, Consolidation can harm competition. Competition leads to lower prices while Mergers in concentrated markets (most of US) can, drive prices up by 20%, 40%, and 50% and decrease Competition and quality.
What are the obstacles to consolidation?
One of the biggest obstacles to Consolidation is the regulatory framework.
In addition, it will lead to decreased competition. With decreased competition, the quality of health care may go down. Lastly, post consolidation prices may go up when there is monopoly and this may lead to further mistrust.
The federal trade commission has put in place certain guidelines and policies to check if a certain consolidation is leading to excessive market dominance in a particular region and leading to lesser competition and lesser choices for patients. Also another bigger concern is that when healthcare consolidation and dominance take place they lead to lower quality of treatment.
Health Analytics
Becker hospital in its website states that one of the main driving forces for consolidation is data. Most healthcare institutions look at healthcare data and analyze its finances, consumer base, the patient history, and lastly the risk analysis of investing in another healthcare entity.
The vast amount of data is collated and spread out so that it can be understood and lastly a decision is made. With the Advent of HIPAA and the HITECH act there is tremendous amount of data that is being analyzed and used in order to make decisions
Budgeting
Budgeting in part forecasting is a major aspect in Health care consolidation because if a budget is forecasted wrongly the complete finances of the institution will be messed up and lead to bigger problems.
Public Administration
Without administration, there is no consolidation, before any consolidation takes place it is very important to understand the different work culture and administrative styles. If there is difference in working, styles and culture, it will be very difficult for these institutions to adjust and may lead to mismanagement and failure. Administration also plays an important role in bringing together the community and making them feeling like one of them.
Government Agencies involved
In 2011, the congressional Budget Office had projected that The Affordable Care Act was going to bring down future deficits and spending on Medicare.
On June 28, 2012, the United States of America Supreme Court upheld the constitutionality of The Affordable Care Act. The ruling upheld that The Affordable Care Act had an individual mandate as an exercise of congress's taxing power. In the case of National federation of Independent Business v. Sebelius, the court ruled that the states could not be forced to take part in The Affordable Care Act Medicaid expansion as they risk losing the current Medicaid funding. Since the ruling of the Supreme Court, the law that was passed together with its implementation continues to be bombarded with challenges from the congress or from the Federal Courts and from the state governments, conservatives advocacy groups, labor unions and small business organization (A-Z index of U.S government Department and agencies).