Hospital groups grow with insurer, private equity partners

To adapt to the ever-changing healthcare environment, hospital groups will get bigger with hospitals teaming up with other facilities, insurers and for-profit companies, according to a new report by Moody's Investors Service.

According to the report, higher payments from insurers, enhanced efficiency and a competitive advantage in the marketplace are driving the wave of hospital consolidations, reported the New York Times.

Although consolidation leaves patients with fewer provider choices, the hospital groups likely will have the financial ability to deliver higher-quality, low-cost care, the report noted.

The report also found that consolidation reduces financial risks for the hospitals involved, leading to better credit ratings, Bloomberg reported.

Insurers and private equity firms are jumping on the hospital consolidation trend as well, noted the NYT article. For example, Pittsburgh health insurer Highmark acquired West Penn Allegheny Health System, first announced in June 2011. And Steward Health Care, an affiliate of private equity firm Cerberus Capital Management, purchased six Caritas Christi Health Care hospitals in March 2010, according to a company statement.

In addition to mergers, hospitals are considering other partnership models like affiliation deals, strategic alliances or the creation of a parent company.

However, a recent PricewaterhouseCoopers report warned that consolidation isn't good business for everyone. 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.

To learn more:
- read the NYT article
- here's the Bloomberg article
- check out the Moody's statement