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Pandemic May Lead to Further Provider Consolidation

MHE PublicationMHE May 2021
Volume 31
Issue 5

Smaller providers that have seen sharp declines in revenue may be acquisition targets for large healthcare systems.

The COVID-19 pandemic has left some healthcare providers on shaky financial footing, which could accelerate the long-term trend toward consolidation and, in the process, drive up healthcare prices while decreasing the quality of care. Studies have found that “prices go up and quality stays where it was or becomes worse” when consolidation occurs, notes Lovisa Gustafsson, vice president of the Controlling Health Care Costs program for the Commonwealth Fund.

Because of the pandemic, hospitals could lose between $53 billion and $122 billion this year alone, according to a report for the American Hospital Association. That’s on top of the $323 billion they were predicted to lose in 2020 as Americans skipped care because of the pandemic. Meanwhile, a survey by the American Medical Association in October 2020 found that many physician practices were experiencing sharp declines in revenue. Physician revenue had dropped by nearly one-third since February. About one-fifth of doctors saw revenue decline by at least 50%.

As revenue has declined, “some might have the financial resources to make it through. Others could be put out of business” or physicians could retire early, Gustafsson says. In other cases, providers could turn to “stronger organizations to acquire them,” says Gustafsson, who co-authored an article for Harvard Business Review in March with David Blumenthal, the president of the Commonwealth Fund, about the pandemic accelerating the consolidation trend. In 2020, 79 hospital mergers and acquisitions were announced, according to a report by the management consultancy Kaufman Hall, compared with 92 transactions in 2019.

Many small transactions, such as when hospitals or health insurers acquire physicians’ practices, often are overlooked, Gustafsson says. Local news media don’t cover them and regulators don’t get involved because of their relatively small size. Studies have shown that increased provider consolidation “tends to increase price in the commercial (insurance) market” because prices are a “product of negotiations between healthcare providers and insurers,” says Karyn Schwartz, senior fellow and lead author of a study on provider consolidation at the nonprofit Kaiser Family Foundation.The evidence is mixed on whether consolidation improves the quality of patient care. Large systems tout the advantages of integration. Schwartz observes, “Just because there’s a merger, it doesn’t mean there’s true integration that leads to better quality of care.”

“There needs to be more scrutiny and better understanding of what happens,” Gustafsson says.

That might happen with the Biden administration, Schwartz says. Xavier Becerra, the new HHS secretary, led a legal battle against Sutter Health last year when he was California attorney general, alleging a variety of alleging anticompetitive practices. A California superior court judge gave preliminary approval to a $575 million antitrust settlement in March. An HHS led by Becerra “could certainly work with the Department of Justice and the Federal Trade Commission on (antitrust) issues,” Schwartz says.

Susan Ladika is an independent journalist in Tampa, Florida.

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