More hospital consolidation expected
Published October 27, 2014
by Richard Craver, Winston-Salem Journal, published in Greensboro News-Record, October 27, 2014.
Shrinking revenue streams, particularly the squeeze on federal and state reimbursement rates, are compelling more health-care systems to enter some form of merger or cost-savings partnership, according to Standard & Poor’s Ratings Services.
“The merger trend among not-for-profit health-care providers is in full swing, with some health systems doing not one but multiple acquisitions, and others likely to continue their search for partners or unique affiliations,” S&P analysts Kevin Holloran and Martin Arrick said in a report released Tuesday.
The report listed 28 hospital acquisitions since January 2013, including Carolinas HealthCare System of Charlotte taking over Stanly Health Services.
“Standard & Poor’s expects further consolidation as the industry responds to the pressures of competition and health-care reform,” the analysts said. They said that overall, “merger activity has been positive for the credit spectrum.”
“Many organizations that would otherwise have spiraled down the credit scale were upgraded or had their ratings withdrawn following a merger with a bigger and more financially robust entity.
“Seismic shifts in the payer, provider and regulatory environment have heightened competition not only for patient volumes, but also the need to reduce costs and gain new skills in population health management and managing health risks.” The recent decline in inpatient admissions is likely to expand, the analysts said.
The analysts also said “employers’ desire to temper the rise in their health-care costs also has contributed significantly to this changing environment.”
“Only time will tell if organizations merged and thrived, meaning bigger is better, or merged and struggled, meaning bigger is only bigger.”
The Triad and North Carolina have had prime examples of the trend in recent years, both in partnerships being formed and previous arrangements coming to an end.
On Sept. 17, Wake Forest Baptist Medical Center said it has joined with WakeMed Health & Hospitals, based in Raleigh, and Vidant Health, based in Greenville, to form a new shared-services operating company. The partnership allows each entity to retain independent governance.
According to a joint statement released by Wake Forest Baptist, the company “will allow the organizations to gain benefits of scale.”
Industry observers said the three-way partnership makes sense in part because the hospitals are not direct competitors and can be more willing to share best practices and cost-reduction strategies.
The three hospitals “will need to be active in their efforts to leverage their combined organizations to reduce costs, advance innovation,” said David Meyer, a senior partner with Keystone Planning Group of Durham.
In November, Wake Forest Baptist said it would make a “multi-year, multi-million dollar investment” in Cornerstone Health Enablement Strategic Solutions, a wholly-owned management services organization operated by Cornerstone Health Care PA of High Point.
Dr. John McConnell, chief executive of Wake Forest Baptist, said at that time the center is making the investment as part of its transition toward providing more patient-centered services and developing new models for how services are delivered. The center chose to partner with Cornerstone rather than create such an organization in-house.
High Point Regional Health System was acquired by UNC Health Care in September 2012, with the system taking oversight in early 2013. High Point Regional remains a private, not-for-profit organization, keeping its management.
In October 2012, Cone Health of Greensboro agreed to shift its management oversight to Carolinas HealthCare System of Charlotte in a 10-year agreement. Cone also remained independent and governed by its own board of trustees.
The hospitals said they want to provide a broader range and more cost-effective services “through the sharing of best practices, access to health care management experts and clinical quality teams.”
Novant Health Inc. launched its shared services division in July 2012. The goal typically is assisting smaller hospitals with supply chain, clinical engineering and information technology, as well as offering strategies to improve clinical performance and identifying growth opportunities.
Novant has formed eight partnerships through the division — four in North Carolina, three in Georgia and one in South Carolina. Three hospitals are in the Triad: Morehead Memorial in Eden, Hugh Chatham in Elkin and Ashe Memorial in Jefferson.
However, Novant confirmed Oct. 3 it has abandoned its effort to expand its ownership presence in eastern North Carolina through mutual consent with Halifax Regional Medical Center.
Novant said Oct. 1 it had signed a non-binding letter of intent that would allow a subsidiary of for-profit hospital chain Community Health Systems Inc. to acquire Gaffney (S.C.) Medical Center and its 125-bed operation.
The S&P analysts said the pace of acquisitions and partnerships likely will slow down somewhat in 2015.
“We believe these unique partnerships, which may or may not involve or lead to an actual merger, present opportunities for cost and clinical efficiencies to combat flat revenue, as well as to access data that has not traditionally been available,” the analysts said.
The analysts acknowledged that the Affordable Care Act is reducing the number of uninsured, and at least temporarily boosting volumes for newly enrolled Medicaid patients in particular.
“We believe the fundamental forces for reform will continue, including increased price transparency, growth in high-deductible plans, reduced reimbursement, more value-based contracting and better disease management,” the analysts said.
“To survive, most providers are adopting one of two common strategies to compete: price, with a goal of becoming the lowest-cost provider in a geographic area; or quality and become a regional or national provider of key services.
“In our view, it is tougher to achieve further cost savings, with new initiatives often requiring a longer implementation time and significant capital spending before they yield results.”
