Hospitals make 'land grab' in effort to expand reach to patients, decrease operating costs

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Hospital consolidation may not lead to decreased patient costs.

A changing healthcare industry is driving significant consolidation—there have been plenty of blockbuster mergers announced this year alone—and that "land grab" may lead to increased costs for patients. 

In the past month alone, Dignity Health and Catholic Health Initiatives officially signed an agreement to form a new Catholic system that would include more than 130 hospitals and 700 sites of care across 28 states. Rumors of a deal between Providence St. Joseph Health and Ascension have also cropped up, a deal that would create the largest hospital operator in the nation. 

Leemore Dafny, a professor of business administration at Harvard Business School, told The Washington Post that many industry executives believe that increasing scale will decrease operating costs. 

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"It feels like a land grab on the part of some systems, seeking to get larger," Dafny said. "Once a couple of these are announced, then more start to get underway, because people don't want to be left out." 

RELATED: Number of hospital mergers and acquisitions this year on pace to top 2016, Kaufman Hall finds 

Whether patients will benefit from these cost reductions is another matter, Amitabh Chandra, a health economist at Harvard Kennedy School, told the Post. Mergers between two hospital systems have limited value opportunity, he said. 

Dafny's research has found that merger between hospitals or health systems in the same state often lead to increased prices for patients, but mergers between organizations in different states have no impact on price. 

The big-name hospitals and systems at the center of these deals are also seeking to better reach their target patient population, experts told The New York Times. To continue to meet that goal, however, mergers will have to become about more than just building scale and revenue, said Thomas Cassels, a consultant at the Advisory Board. 

Cassels said that hospitals will learn quickly that they can't simply use mergers to raise prices—patients will find a way to go somewhere else. 

"Health systems are considerably more concerned with being convenient and not unaffordable than they are making services less desirable because they are more expensive and on the hospital campus," Cassels told the NYT. 

RELATED: Hospitals may take financial hit following merger 

The industry's merger-mania has also left what few independent nonprofit hospitals that remain in a state of flux. Jim Burkhart, former CEO of Tampa General Hospital, was pushed to resign by the hospital's board, who were dissatisfied with financial results, he told Florida Trend.

But, he said, the consolidation trend has made it harder for independent facilities like Tampa General to stay competitive. 

"They would like to see finances be better because we're in an environment where you're trying to build a health system," Burkhart said. 

Independent hospitals will have to think outside the box to stay afloat, he said. For example, a land deal where a hospital rents building space instead of building their own new facility could be a way to expand reach.