Point: Bigger is Better
Mergers and acquisitions in the health care industry are happening for a reason -- the Patient Protection and Affordable Care Act.
The ACA is forcing hospital systems to focus more on preventive care, and that will ultimately mean a decrease in in-patient revenues. When hospitals merge and become part of larger systems, they are able to spread fixed costs and have easier access to capital at better rates.
Everyone who has ever taken a basic economics class knows that efficiencies increase and costs decrease when an organization reaches a larger size.
Enhanced resources that will be available to larger health systems will mean more sophisticated technology, more modern facilities and more consistent training on safety and new techniques for professionals and technicians.
It means larger hospitals can compete -- and will nearly always win -- the battle for the best medical talent. That should reduce malpractice risk.
With more access to capital and better technology, larger hospital systems will have better patient results. That will keep their readmittance rate low, and that is crucial as keeping patients from being readmitted to the hospital is a cornerstone of the Affordable Care Act. It will also allow them to focus more on preventive care.
Large hospital systems will also have the funds available to modernize their older, rundown facilities. That will lower their property risks as well as serve as another reason talented professionals will seek to find employment in larger hospital systems.
M&A activity is also happening because health care leaders are tracking demand for services. They are focusing on populations and are adding large facilities in areas where they are needed, such as the Southeastern United States, where population has been growing.
Too much competition isn't always a good thing. It can lead to wasteful expenditures, such as when two neighboring hospitals, that both serve the same community, spend excessively on sophisticated diagnostic equipment. If they merged, the system could share the equipment instead of duplicating each other's purchases.
Smaller, community-based hospitals just don't have the expertise and wealth of resources that larger hospital systems can rely on.
--Anne Freedman is senior editor of Risk & Insurance®. She can be reached at email@example.com.
October 15, 2013
Copyright 2013© LRP Publications