Healthcare News & Insights

Mergers in the spotlight: How to keep your hospital from scrutiny

99328676As a way of adapting to the ever-changing healthcare landscape, some hospitals are turning to mergers, seeing them as the most efficient, cost-effective means of giving high quality care to patients.

But some don’t see it that way.

Hospital mergers have historically had a bad reputation. They were thought to discourage competition and, as a result, cause healthcare prices to skyrocket.

However, given current reimbursement trends that reward hospitals for coordinating patient care with other providers, mergers may be the only way for many hospitals to survive.

In an opinion piece published in the Wall Street Journal, Dr. Kenneth Davis, president of Mount Sinai Health System in New York, discussed the benefits of hospital mergers when it comes to coordination of care. It’s more difficult for stand-alone facilities to achieve this goal, Dr. Davis says, because they lack resources.

Smaller stand-alone hospitals may be affiliated with fewer specialists, or they may not have a comprehensive electronic health records (EHR) system that can send information easily to other providers. Also, they may have smaller budgets and fewer staffers in general, so it would be more difficult for them to meet the demands that increased care coordination requires.

Here, Dr. Davis says, consolidation would be the best bet. If more hospitals worked together under one large health system, patients would actually have more choices. Reason: There’d be more in-network doctors to choose from, along with a wider variety of healthcare services.

Budget constraints may force smaller hospitals to cut out certain services to survive financially, including psychiatry and obstetrics, but if they paired with a larger hospital, they’d be able to keep providing these critical services while eliminating redundant ones, saving costs and still giving patients excellent care.

Payors aren’t pleased

While hospitals are clamoring for mergers, payors aren’t feeling the same way about their positive effects.

The issue has recently come to the forefront because of a situation in Chicago, according to an article in the Chicago Sun Times. Two healthcare systems, NorthShore University HealthSystem and Advocate Health Care, want to merge. Together they’d be one of the largest tax-exempt health systems in the nation.

And the proposal isn’t making payors happy. They claim that, rather than promoting value-based care, such deals make it more difficult to meet those objectives. Large hospital systems limit patient choices, payors say, and they drive up prices by negotiating higher rates for services – which are passed on to patients in the long run.

There’s some research supporting what payors say, and several studies are cited in the Sun Times piece. A review by one professor showed that prices for six common hospital procedures were up to 50% more expensive in an area with less competition.

In addition, payors have powerful allies against healthcare mergers: the Federal Trade Commission (FTC). According to an article from Forbes, this past August, the FTC weighed in on a merger in Idaho. St. Luke’s Health System recently acquired the largest independent physician practice in the state. The organization opposes the move – and its opinion has influenced courts to invalidate mergers before.

Recently, an appeals court forced ProMedica, an Ohio-based healthcare system, to undo its merger with a large Ohio hospital, agreeing with the FTC’s assertion that the agreement would cause prices to skyrocket.

So it’s clear the odds are stacked against hospitals.

3 keys to successful mergers

With mergers for hospitals becoming more common, and more challenged by payors and government agencies,  there are some guidelines hospitals can follow to ensure their success – and avoid as much scrutiny as possible.

If your hospital is considering merging with, or acquiring, another hospital, keep these principles, adapted from an article written by Dr. Maurice Vaughan, president of Rochester General Hospital’s medical and dental staff, in mind:

  1. Keep quality care at the forefront of the merger. The first question your hospital should consider when merging with another entity: How is this going to benefit the community and our patient mix? Having clear answers ready will prove to any naysayers that your merger is worthwhile.
  2. Get feedback from staff at each institution. Speaking to all employees that would be affected, from clinicians to administrators, will help you see what types of services the new entity will need to provide, along with the staffing levels required. It’ll also help you develop a set of common goals for the merged organizations, ensuring that everyone’s on the same page with the initiative.
  3. Prove you’ll be effective and efficient with the new resources at your disposal. To minimize worries that your new organization will raise costs, have a plan ready showing exactly how the new merger will streamline healthcare delivery for patients. If you think the merger will help patients get better follow-up care, reducing the likelihood of readmission and lowering health spending overall, find data to support that assertion. You may also want to take a hard look at the prices for certain services at both facilities to make sure they’re in line with what similar hospitals are charging – and try not to stray too far from those averages when initiating the change.

Following this strategy may help your hospital have a better chance at a successful merger with fewer objections from outside entities.

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