Vertical Integration May Be the Best Option for Some Troubled Health Care Providers
There has been a significant wave of health care provider consolidation driven by the desire to achieve scale in response to declining patient volumes and reimbursement, increasing costs, health care reform and the need for capital to implement improvements in the delivery of care, development/expansion of their physician networks and to make needed upgrades in IT, especially electronic medical records. The steady growth in hospital M&A activity since 2009 with nearly 100 transactions completed during 2013 is expected to continue. Experts agree that hospitals that merge “gain valuable leverage in negotiating for insurance contracts, product pricing and talent recruiting as well as assuming more control over emerging accountable care organizations.”
Troubled health care providers have been taking advantage of this trend of horizontal consolidation by affiliating with other stronger providers (see for example the successful bankruptcy sales of Casa Grande Regional Medical Center, Forum Health, Saint Francis Hospital, etc.) and this wave of consolidation has led many boards to the conclusion that their best chance to save their mission is by affiliating with a stronger provider.
At the same time there is another wave of consolidation led by health plans that are pursuing vertical integration both to control their costs and manage population health. Health plans are also reacting to the increasing strength of physician networks. In fact, many health plans are actively acquiring physician practices. This trend may lead to a natural extension into the integrated health system as the next wave of integration.