Regardless of what Community Health Systems execs may think, big, massive, overstuffed hospital mergers aren’t going to work in the next decade. No amount of economies of scale will make up for the dollars health systems will lose if they decide to operate their business if it were Walmart.
Look at the history of the market. Massive scaling up of hospital infrastructure — remember the grand Medicare-fueled building party in the 1960s? — has always been followed by financial weakness, overbedded markets and vicious regional competitions nobody can win. Hospitals that try to reproduce this technique in multiple markets are only going to do worse.
In truth, I imagine CHS and other large hospital players are more focused on generating leverage with payers. (They mostly have to scream “economies of scale” to satisfy Wall Street investors who wouldn’t know an ICU from an inside pitch.) After all, as reform washes over the land, the big health plans are going to see big upward jolts in their covered base. And since the newly-insured aren’t likely to be cash cows, health plans are going to be more cost-conscious than ever when they negotiate.
“Massive scaling up of hospital infrastructure — remember the grand Medicare-fueled building party in the late 1960s? — has always been followed by financial weakness, overbedded markets and vicious regional competitions nobody can win.”
That being said, I don’t think creating hospital megaliths will tilt the scales back into balance. Hospitals will always be on defensive when it comes to health plan contracts; the brutal fact is that health plans have the money, and hospitals don’t. Hey, you can scream, we’re the best in the region, but let’s face it folks, health plans are more in the quantity than quality game.
So, what do hospitals do to cope with their vulnerability? Careful, gradual acquisitions in key markets, strategically positioned to streamline the way they run key service lines across a region. And integration, Lord yes, but I’d argue creating your own health plan is a much better bet than buying medical practices willy-nilly. (OK, you can do both, but I’d argue that putting a health plan in place should be the priority.)
By the way, I’d argue that the growth of the ACo concept suggests that I’m not alone — that just about every policymaker thinks that managed care-style medicine needs to be nurtured by providers.
Under these circumstances, big hospital mergers look even worse, as it’s pretty hard to build tight collaborative relationships when all orders have to come from the mothership in Nashville or Dubuque.
No, I say, a time comes for all industries when it’s time to think small, and this is it. Tenet, HCA, Community Health, the big Catholic systems — now is the time to decentralize aggressively or pay the price. You’ve got three and a half years before reform goes full tilt. Tick tock, folks.