Merger activity: Jon Cohen, MD, addresses state of hospital systems after merger dust settles

May 1, 2008

When Jon R. Cohen, MD, was recently appointed managing director of health industries advisory services for PricewaterhouseCoopers LLP, he says it was "complex solution solving" that drew him to the firm. Here, he discusses trends on hospital mergers, profitability and hospitals, and his thoughts on the 2008 presidential hopefuls.

"PwC did all the business and strategic planning for stem cell research for the state of California," he says. "We did all the strategic planning for the city of New Orleans after Hurricane Katrina to help rebuild their healthcare system."

In addition, Dr. Cohen, a former health system chief medical officer, helps develop board-level strategy to transform clinical systems. He has expertise in hospital and network mergers, health information, clinical standardization, and physician relationship strategies.

Another strong reason for success was a strong commitment on the part of the boards. In some mergers it truly was the commitment on the part of the board of trustees that allowed the mergers to occur.

One driver for hospital mergers in the past was the ability to negotiate effectively with the payers-the insurance companies-because the individual hospitals had a difficult time negotiating by themselves. Larger hospitals have been able to successfully negotiate because of their size as opposed to in the past.

Now we're seeing stabilization. There are some continued acquisitions of large hospital systems, but it's nowhere near the frenzy of activity of the late 1990s, early 2000s. People are now looking to increase the revenue side. No longer are they as focused on an increase in managed care rates.

Many people are asking: How do we increase the number of patients we're seeing? How do we build better relationships with physicians to bring patients into our hospital system? What we're seeing is that increased volume increases revenue.

Mostly what's happening on the hospital-system side is continued improvement in operations. In addition, hospitals are focusing on clinically integrating the present health systems. Many places have six, eight, 10 hospitals and wonder, 'how do we act more like a system on the clinical side? How do we implement quality standards across the system? Should we be full service or do we allocate different types of disease-oriented care to different hospitals in a system?' Those are the clinical changes occurring.

Q. Going forward, do you think it will be difficult for academic centers to affiliate with hospitals?

A. It will be very hard for academic medical centers to continue to affiliate with city hospitals and maintain and sustain the relationship based on the cost issue. You see that in so many of the major cities. It's a real issue relative to what's going to happen with the city or county hospital system. The unanswered question related to that is who's going to take care of the uninsured. In many of the urban centers, the uninsured are being cared for in city or county hospitals. That's a problem for the hospitals who are not city or county.