By John N. Kastanis, FACHE, MBA, JNK Consultants
Twitter: @kastanis_n
After watching a 60 Minutes segment, aired on December 13, 2020, regarding Sutter Health’s domination of the healthcare market in northern California, I was prompted to reassess the justifications of hospital mergers and acquisitions that continue to transpire across the country.
The segment covered the 2018 lawsuit filed by the California State Attorney General, Xavier Becerra, against Sutter Health, which allegedly has raised all of their prices with no significant difference in operating costs, equipment, facilities, as well as no improvement in quality of care compared to other providers in northern and southern California. This situation stems from Sutter’s 24 hospitals and over 12,000 physicians working within its network of inpatient and outpatient care. One glaring price disparity resulting from Becerra’s investigation of Sutter’s control of all Maternal care in northern California, is that their related prices are 74% higher than those of southern California hospitals.
What may have prompted the 60 Minutes expose on the ills of healthcare market domination brought on by merger & acquisition (M&A) activity is a recent Wall Street Journal article by Melanie Evans, entitled “Nonprofit Hospitals To Create Behemoth.” The behemoth system was going to be the result of Inter Mountain Healthcare merging with Sanford Health, a nonprofit based in Sioux Falls, South Dakota, creating a combined network of 69 hospitals. Evans also pointed out that this new partnership would also “unite the two systems’ insurance operations, which cover about 1.1 million people, and include more than 400 clinics.” Needless to say, this proposed merger would also have dominated their respective markets, allegedly to stave off fast-growing disruptive innovators such as retailers, pharmacy chains, telehealth services, big tech, and other local hospital competitors. Notwithstanding these factors, the Evans article does mention some recent proposed mega-deals collapsed with no explanation, although one could infer that the onset of COVID during 2020 caused some major refrain. And yet, some other proposed mergers prevailed. By the way, the aforementioned Inter Mountain/Sanford Health merger also did not prevail.
The major point that is to be made about healthcare M&A activity is that employers and regulators are concerned about how to better control costs of beneficiaries’ health benefits. Evans said it all in her article by quoting Martin Gaynor, a former director of the Bureau of Economics for the Federal Trade Commission and a health-policy professor at Carnegie Mellon University, “There’s been a huge amount of consolidation and we have very little to show for it.” Indeed, if hospital systems continue to evolve into behemoths, then they should consider their original missions and visions of what they set out to accomplish for the patient populations that they have historically cared for. It’s one thing to try to attain financial sustainability through partnerships that eliminate duplicative clinical services, leveraging supply chain opportunities, sharing teaching and research programs, and implementing effective patient population health strategies, but not to leverage their new scale of operations by raising prices artificially with no improvement of quality and access to care.
It’s become all too obvious that we have reached an inflection point where one too many “behemoth” health systems continue to operate with a lost vision of true purpose and righteous commitment to the patient populations they purport to care for.
This article was originally published on the JNK Consultants blog and is republished here with permission.
