CEOs: The pace of health care consolidation isn't slowing

80 percent say consolidation will continue or accelerate in coming years

Most health care CEOs surveyed by Modern Healthcare believe that the rate of consolidation will accelerate in the coming years— and that the result could be higher prices.

Modern Healthcare in February surveyed 84 health care CEOs, three-quarters of whom lead a hospital or other provider group.

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Provider consolidation

Nearly 80 percent of respondents said the rate of consolidation of hospitals, physician groups, pharmaceutical companies, and other health care organizations will hold steady or accelerate in the coming years.

"I don't hear one person who's not actively working on [consolidating]," said Cathy Jacobson, CEO of Froedtert Health, a Milwaukee-based health system. "Whatever mode that takes, full consolidation or acquisition or a partnership, all providers are working on that."

Forty-six percent of CEOs surveyed said that horizontal provider consolidation—such as health systems acquiring competing hospitals—"sometimes" reduces competition and raises prices for patients, insurers, or employers, while 28 percent said that it "usually" or "always" does. CEOs gave similar responses when asked about vertical integration, such as health systems purchasing physician practices.

Ram Raju, CEO of NYC Health + Hospitals, was one of the few respondents who said vertical and horizontal consolidation always lead to price increases. He called that "an unavoidable outcome" of organizations leveraging their increased market power. "I'm not going to damn someone because they are consolidating to get a better rate," Raju added.

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More than 50 percent of respondents said that provider integration increases efficiency and care coordination. However, Joel Allison, CEO of Baylor Scott & White Health, stressed to Modern Healthcare that bigger isn't necessarily better. "Better is better," he said. "Scale does have some value, but you just have to do it for the right reasons."

Insurer mergers

The survey also explored an issue relevant to the Justice Department's consideration of Anthem's plan to acquire Cigna and Aetna's plan to acquire Humana: About two-thirds of respondents said insurer mergers "always" or "usually" give insurers greater bargaining power that contributes to lower provider payments.

"Look at any market where an insurer has 50 percent to 60 percent market share or more," Jacobson told Modern Healthcare. "You'll see lower reimbursement in those markets without question."

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Another two-thirds of respondents said that insurance mergers will "rarely" or "never" lower deductibles, premiums, or other out-of-pocket consumer costs. However, 25 percent said they would "usually" or "sometimes" lead to reduced member costs.

Some respondents said that insurers had to consolidate to counteract hospitals' continuing mergers, especially as regulations started to eat into their margins.

"The insurers' hand was forced to consolidate by Obamacare," said David Brailer, CEO of private equity firm Health Evolution Partners. "This is about scale and about the ability to take costs out of their business when the profit pools have been demolished" (Herman, Modern Healthcare, 3/5).

M&A—To What End? Five Characteristics of Intentional Strategy

We are in the midst of the most significant period of provider consolidation in the last 30 years.

The most successful M&A deals are focused on delivering a better product to patients and purchasers, rather than insulating the system from competition. Find out what separates these deals from the rest.


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