HFMA panel: Pressures to merge are relentless

Hospitals throughout the country face constant and persistent pressure to merge, according to a panel discussion of four executives at the Health Financial Management Association's annual national institute in Orlando, Fla., last week.

"We are chum for the big systems," observed James Doyle, chief financial officer for Elmhurst (Ill.) Memorial Healthcare, a two-hospital system. That larger hospital systems tend to do better in mergers may bear that observation out.

Tightening market shares also are making providers more adversarial. Although Michael Allen, treasurer for the Winona (Minn.) Health System noted the default behavior has been "Minnesota Nice," market pressures--driven in part by mergers--have been changing that dynamic. "The pie is starting to shrink, and table manners are starting to get worse," he said.

The panelists discussed ways their hospitals can remain independent in such an acquisitive era. Differentiation was the biggest key, they agreed. 

Myron Machula, chief financial officer of Enloe Medical Center in Chico, Calif., a rapidly-growing college community in a rural area 90 miles north of Sacramento, said his hospital has focused on providing specialty services. "We're a community hospital with a high level of specialties" such as pulmonary and cardiac services. Partly as a result, Enloe reported a 7 percent operating margin last year--the best in its history.

The providers also feel a need to have greater geographical reach. Harold Dupper, vice president of finance for Platte Valley Medical Center in Brighton, Colo., said even with a top financial rating, some lenders are unwilling to provide capital without geographic disbursement.

Such pressures are all leading providers to seriously consider merging, but it should not be done carelessly. "Community hospitals are very different from one another, and a cultural match is important," Doyle observed. He added that his own system broke off negotiations with Northwestern Health in part because the cultures were not good matches.

Asked what the hospital landscape will look like a decade from now, Machula speculated hospitals could be like public utilities--the continued fallout from the implementation of the Affordable Care Act. However, there would be one upside, according to Machula: a guaranteed rate of return.

Doyle wryly noted that if the market forces eventually lead hospitals to become utilities, the public better "get used to periodic brownouts."

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