Super-sized: Consolidations may lead to mega-regional systems in major markets
Consolidation in the healthcare industry has been almost non-stop in recent years, and the year ahead promises more of the same. As a result of recent hospital merger-mania, increased leverage and revenues have created "super-regional systems" in several major markets, according to Becker's Hospital Review.
For example, in Chicago, consolidation reached a crescendo in 2014 when fully integrated health system Northwestern Memorial HealthCare and Winfield, Illinois' Cadence Health finalized a merger, with Northwestern expanding to include four hospitals under the deal. Since then, the article notes, Northwestern has expanded its reach, finalizing a deal with KishHealth in Dekalb, Illinois. The system now boasts six hospitals and more than 4,000 workers.
Two more Windy City-area systems, Advocate Health Care and NorthShore University HealthSystem, also announced a deal in 2014 that would create a 16-hospital system, the largest in the state. However, last December, the Federal Trade Commission intervened, arguing the deal would be anti-competitive.
Should the merger go through, it could potentially create a two-tiered healthcare market in the area, with smaller systems with lesser market shares going up against "super-regional" systems, Gregory F. Hagood, senior managing director and president of SOLIC Capital, told Becker's. While Chicago is the most obvious example, the same factors are at play in markets such as Philadelphia, he said.
Another risk posed by extensive consolidation is that participants may not be able to make the necessary changes and adaptations within the organization's culture, Kaiser Permanente Executive Vice President Benjamin Chu and Vice President of Business Development Cecilia Montalvo said during a recent Health Affairs symposium.
Consolidation, they said, is not synonymous with integration, which takes years to fully realize. Cultural cohesion is a major factor in whether mergers and acquisitions succeed or fail.
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