Hospitals Are Merging to Face Off With Insurers
By Zachary Tracer
December 11, 2017, 1:18 PM EST
A spate of hospital deals stands to further remake the U.S. health-care landscape, pushing up prices for consumers and insurers and changing how individuals get care.
Just this month, health systems with at least 166 hospitals and $39 billion in combined annual revenue have announced merger plans. There’s likely more to come: The Wall Street Journal reported on Sunday that Ascension and Providence St. Joseph Health, a pair of nonprofits that together have 191 hospitals and nearly $45 billion in annual revenue, are in deal talks.
A fast-moving shakeout in the health-care sector has led to once-unorthodox deals across formerly distinct corners of the industry, as large insurers shift their business models amid pressure to bring down costs. That in turn has led hospitals to look for ways to preserve their revenues.
Health systems say joining forces allows them to better marshal resources and coordinate treatment. But mergers can also boost their bargaining power with insurers and employers, driving up costs and reducing options for consumers, research by economists has found.
“Health care is a product delivered with a tremendous amount of friction, and it doesn’t have any of the convenience or accessibility that many other products in our economy have,” said Ken Kaufman, managing director and chairman of Kaufman Hall, which advises health systems. “These large organizations are really trying to come together to accumulate the intellectual resources and the financial resources to solve that problem.”
Battle for Leverage
Hospitals are looking to increase their muscle as insurers push into providing care. Last week, UnitedHealth Group Inc., the biggest U.S. health insurer, struck a $4.9 billion deal to acquire DaVita Medical Group, which has approximately 15,000 affiliated or employed doctors and other providers, according to a May presentation to investors. The insurer’s Optum unit already had more than 30,000 affiliated physicians.