3 ways realignment can help hospitals

In an industry pushing for coordinated care and integrated systems while dealing with more than $430 billion in hospital budget cuts since 2010, hospital realignments are a necessity to survive. Moreover, realignments can enhance community access, create higher value and foster greater efficiency, according to a new report from the Center for Healthcare Economics and Policy.

The research, which was commissioned by the Federation of American Hospitals, reviewed 75 studies from 1996 to 2013 and included 36 primary sources. The studies reveal hospital realignment can create:

  • Enhanced access: Hospitals maintain services for their communities that otherwise might be reduced or eliminated through hospital downsizing or closure. Some studies show alternatives to mergers or acquisitions include hospital closures, downsizing or reduction in service mix. Hospital closures can reduce access to care and can result in negative welfare effects for the local community; literature found some negative impact on mortality rates.

  • Higher value: Realignment of services helps achieve greater scale of operations or improvement in quality of care and enhanced access to care. It also allows access to capital and improved ability to make necessary investments, such as upgrading technology and updating facilities or services.

  • Greater efficiency: Hospital realignment fosters reduced costs and reduced rate of cost growth through improved operating efficiency, lowered administrative and overhead costs, and reduction or elimination of redundant services. There's also a reduction in excess capacity, as well as costs through realignment, to benefit poorly performing or inefficient hospitals.

From 2007 to 2011, 333 hospital mergers occurred nationwide, 111 of which were required to report to the Federal Trade Commission (FTC), according to an informational graphic based on the report. The FTC challenged only four of those mergers.  

"This analysis is a reality check that turns the prevailing policy mantra about consolidation on its head," Chip Kahn, president and chief executive officer of the Federation of American Hospitals, said in a statement. "We now have a contemporary assessment demonstrating that hospital realignment preserves local communities' access to essential care and provides additional benefits to patients and communities."

However, a 2012 PricewaterhouseCoopers report warned that consolidation isn't necessarily good business for everyone. In fact, two-thirds of deals do not meet expectations because of overpaying, culture clashes, failure to retain key employees and ineffective communication, among other concerns, FierceHealthcare previously reported. The report indicated that mergers, even small ones, carry considerable risk.

To learn more:
- here's the report (.pdf)
- read the statement (.pdf)
- check out the informational graphic (.pdf)