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Merging Into the Consolidation Lane

Posted by ClearDirections on July 6th, 2011 in Hospital Management, Innovation, Mergers & Acquisitions | No Comments

Complex highway on ramps resemble hospital merger complexitiesWith the merger of Provena Health in Mokena, Ill., and Resurrection Health Care in Chicago now moving forward, it will be interesting to watch how quickly the merger proves whether their joint purchasing and negotiating power will rival that of Advocate Health Care, another 12-hospital system in the Chicago area. With their merger, Provena and Resurrection would create the largest Catholic system in Illinois with 12 acute care hospitals and a combined $2.7 billion in operating revenue. This pales compared to the $4.5 billion operating revenue reported by Advocate Health Care for the year ending December 2010.

After the state planning board reviews the merger in the coming months, the two systems will have significant goals to accomplish, such as merging cultures, strategic plans, electronic medical record systems, management teams, purchasing criteria, boards, measuring efficiencies gained and more.

Cost Controls May Backfire
Most hospitals see incentives to “pair up.” Changes in the insurance industry, such as lower reimbursement rates on certain products and services (including Medicaid and Medicare programs), place greater financial pressure on hospitals and health systems. Health care reform’s cost-control measures intend to benefit hospitals in so many ways, such as reducing the number of uninsured “charity” patients and providing government grants to fund quality improvements. Greater transparency also aims to lower costs to consumers by increasing competition, reducing errors and fraud, and improving coordination of care. However, these economic incentives are spurring more consolidation, which actually may decrease competition, as we likely will see in the merger of Provena and Resurrection.

When it comes down to it, hospitals must find innovative ways to reduce their operating expenses while they INCREASE their revenues. America’s healthcare system cannot shrink its way to greatness. They must invent new ways to better serve their communities.

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