THE OUTLOOK FOR HEALTH CARE IN 2023:

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April 25, 2022

What does hospital consolidation mean for US health care?

Daily Briefing

    Almost 350 hospitals changed ownership either through acquisitions or mergers between 2016 and 2021, according to a "first-of-its-kind" report by HHS' Office of the Assistant Secretary for Planning and Evaluation (ASPE)—and experts predict that consolidation in the health care industry will increase going forward.

    Radio Advisory episode: Are mega systems the future?

    Report details and key findings

    For the report, ASPE researchers analyzed data from CMS' Provider Enrollment, Chain and Ownership System, which tracks changes in hospital and skilled nursing facility (SNF) ownership. The current dataset covers 2016 through 2021 and will be updated quarterly for public use.

    Overall, researchers found that 348 hospital ownership changes, including both sales and mergers, occurred between 2016 and 2021. This was equal to 9.8 transactions per 1,000 hospitals per year. In total, 4.6% of all hospitals nationwide changed ownership during the study period.

    Among the purchased hospitals, a majority (85.5%) have a single direct organizational owner, while 6.4% have multiple organizational owners but no individual owners with 5% interest or more.

    Hospitals with the lowest profit margins were sold twice as often as those with the highest profit margins, ASPE found. Similarly, medium and large hospitals were more likely to be sold than small hospitals.

    In addition, certain types of hospitals changed ownership at higher rates than others. Among long-term care hospitals, 9.5% changed ownership during the study period. In comparison, general short-term (4.7%), rehabilitation (4.5%), psychiatric (2.2%), and other (1.9%) were sold at substantially lower rates. Only one critical access hospital out of 1,330 nationwide changed ownership during this time.

    Hospital ownership changes also varied by state, with more transactions occurring in the South where many for-profit chains are located. In particular, South Carolina saw the highest rate of hospital ownership changes. Out of its 73 hospitals, 14 (19.2%) changed ownership during the study period. Other states that saw ownership change rates of over 10% were Kentucky, New Jersey, and Connecticut.

    Among SNFs, 3,236 changed ownership between 2016 and 2021. Of these facilities, almost two-thirds involved a purchase from a single owner.

    Consolidation will likely increase. What does that mean for the industry?

    According to Ricky Goldwasser, managing director at Morgan Stanley, the health care industry should expect more consolidation this year, particularly in the second half.

    "We think that we're definitely going to see more consolidation," Goldwasser said. "I think that we're going to see small-scale players sort of merging with others to create scale. We're going to see the larger stakeholders, whether they're healthcare companies or tech companies in some areas or large consumer companies -- we see them ... opportunistically looking at M&A [mergers and acquisitions]."

    Going forward, mergers and acquisitions may help financially struggling hospitals prevent closure or service reductions, Modern Healthcare reports. Lisa Goldstein, SVP at Kaufman Hall, said this was the case during the pandemic when small, rural, and mid-sized hospitals were bought by larger health systems. By being under these larger health systems, smaller hospitals were able to access personal protective equipment, ventilators, and staff that would not have otherwise been available.

    "Without being part of a larger system, smaller hospitals will face closures or bankruptcies because of the inability to absorb very large and permanent labor cost increases, recruit the future workforce and clinicians and treat an aging population," Goldstein said.

    However, other experts have voiced concerns about how increased consolidation will affect patient care, especially for people of color and low-income communities.

    For example, Lois Utley, senior advisor for the Hospital Equity and Accountability Project, said health system mergers usually expand into predominantly white, suburban areas while hospitals in urban and rural communities of color are often overlooked. In addition, these mergers tend to downsize or close money-losing service lines, such as maternity units and EDs.

    "The consequences of these actions have been starkly exposed by the COVID-19 pandemic, which found that Black, Latinx and indigenous people have had a harder time finding care in their own communities," she said.

    Overall, Benjamin Sommers, deputy assistant secretary for health policy at ASPE and one of the report's authors, said the report gives researchers and policymakers more information about what to explore and how to shape discussion around competition among hospitals and SNFs.

    "This is the tip of the iceberg," Sommers said. "But this analysis is pretty notable and has some policy implications. We're seeing the most transactions among medium-to-larger hospitals and ones losing money." (Kacik, Modern Healthcare, 4/20; Welch et al., ASPE, 4/20; Clark, MedPage Today, 4/21; Frieden, MedPage Today, 4/14; Kacik, Modern Healthcare, 4/21)

    Are mega systems the future?

    Listen to the Radio Advisory episode

    Radio Advisory, a podcast for busy health care leaders.

    In this second episode on consolidation, Host Rachel (Rae) Woods sits down with health system expert, Ben Umansky, to talk about the impact Covid-19 may have on hospital consolidation. For many years, experts have been predicting an extreme view of what hospitals could look like in the future—including a world of mega health systems and the death of the independent hospital.

    Together, Rae and Ben explore the how real that prediction is, unpack the true long-term impact of Covid-19 on consolidation, and offer the no-regrets tactics every organizations should take regardless of size.

    Listen now

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