How Hospital Changes Will Affect Doctors' Practices

Leigh Page

Disclosures

September 19, 2018

In This Article

Trend #1: From Independent Hospitals to Health Systems

Despite uncertainty in healthcare policy, such as the fate of the Affordable Care Act, hospitals continue to undergo significant changes. These trends are likely to make significant differences in how physicians work with and within hospitals, and how patients receive health care. Four key trends are taking place in the hospital industry.

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The trend of hospitals merging into ever-larger health systems has been going on for years, and now a majority of hospitals are in a system. The American Hospital Association (AHA) reports that 60% of its member hospitals are part of a health system, with most of them in systems consisting of three to 10 hospitals.[1]

This could mean that physicians have access to higher reimbursements because large systems have more bargaining power with commercial payers. Large systems can also provide physicians with more high-tech equipment and more specialized procedures for their patients than they might have in an independent practice.

This consolidation trend continues. In the second quarter of 2018, hospital mergers and acquisitions exceeded 200 deals for the 15th straight quarter. The number of deals was down from some recent quarters, but those periods had experienced "exceptional megadeal activity," the report said.[2]

Hospitals have been accused of consolidating simply to leverage market share and force insurers to raise payments. However, a 2017 study commissioned by the AHA found that mergers also produce efficiencies. Specifically, mergers occurring from 2009 to 2014 reduced annual operating expenses at acquired hospitals by 2.5%.[3]

Small hospitals join large systems to gain capital and clinical expertise, achieve economies of scale, and eliminate redundancies, such as by centering orthopedics at one hospital, says Andrew Bachrodt, a principal with ECG, a health care consultancy based in Dallas.

"Many small, not-for-profit hospitals are still holding back from joining systems," he says. "Their boards are charged with being wise stewards of a community asset, and when small hospitals join large systems, they give up their autonomy."

Even when hospitals stay independent, they often affiliate with larger systems, says Costa Magas, managing director of the healthcare business at Huron, a Chicago-based consulting firm. "Then they have the best of both worlds: They can maintain their independence while harnessing the power and name of a larger system and its broader network."

Bachrodt agrees, adding, "Small hospitals have to contend with patients wanting to go to larger facilities many miles away, where they think they can get better care," he says. But in an affiliation, "physicians from the larger health system rotate through the small hospital, and the system shares revenue with the small hospital."

Meanwhile, hospital systems are building a new version of small hospitals—the micro-hospital, which has only a few beds and limited services. Micro-hospitals typically include an emergency department, diagnostic center, ambulatory surgery, and medical office space, Bachrodt says.

"Micro-hospitals offer convenience," he explains. "Patients are closer to where they live. The limited services also have a lower cost structure than those provided by the full-service, acute-care hospital."

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