This month, two hospital mega-mergers were announced between Ascension and Providence, two of the nation’s largest hospital groups; and, between CHI and Dignity Health.

In terms of size, the CHI and Dignity combination would create a larger company than McDonald’s or Macy’s in terms of projected $28 bn of revenue. (Use the chart of America’s top systems to do the math).

For context, other hospital stories this week discuss in southern New Jersey. And this week, the New Jersey Hospital Association annual report called the hospital industry the “$23.4 billion economic bedrock” of the state.

Add a third important item to paint the state-of-the-U.S. hospital-industry picture: Moody’s negative ratings outlook for non-profit hospital finances for 2018.

So will getting bigger through merger and consolidation make the hospital business better?

In the wake of the CVS-Aetna plan to join together, the rationale to go big seems rational. Scale matters when it comes to contracting with health insurance plans at the front-end of pricing and financial planning for the CFO’s office, and to managing population health by controlling more of provider elements of care from several lenses: influencing physician care; crafting inpatient hospital care; doing smarter, cheaper supply purchasing; and leaning out overhead budgets for things like marketing and general management.

But the Wall Street Journal warned today the “serious condition” of U.S. hospitals, despite these big system mergers.

Health Populi’s Hot Points:  In the past two years, I’ve had the amazing opportunity of speaking about new consumers and patients growing into healthcare payors with leadership from hospitals in over 20 states, some more rural, some more urban, and all in some level of financial crisis mode.

After describing the state of this consumer in health and healthcare, and how she/he got here, I have challenged hospital leadership to think more like marketers with a fierce lens on consumer experience and values. That equal proportions of U.S. consumers trust large retail and digital companies to help them manage their health is a jarring statistic to these hospital executives. The tie-up between CVS and Aetna marries the retail health/healthcare segments and responds to this consumer trust issue.

But then, I remind them that nurses, pharmacists, and doctors are the three most-trusted professions in America.

These three professional clinicians are the human capital that comprise the heart of a hospital in a community.

Hospitals should be mindful that trust is necessary for patient/health engagement. And the trust is with hospitals if the organization chooses to leverage that goodwill for a value-exchange. Hospitals are economic engines in their local communities — often, the largest employer in town. “Everyone” in most communities knows someone who works in a hospital.

And hospital employees spend money in communities, bolstering local employment and tax bases.

Partnering with patients means empathizing with them as both clinical subjects and consumers. For the latter, refer to the sage column from JAMA which recommends that Value-Based Healthcare Means Valuing What Matters to Patients. This means thinking about the value-chain of the patient journey, from keeping people well in their communities through to managing sticker-shock in the financial office. The financial toxicity of healthcare is one risk factor threatening the hospital-patient relationship with the patient-as-payor.

As Mufasa told Simba in The Lion King, “You are more than what you have become. Remember who you are.”

Dignity Health remembered who they were based on core values of human kindness in their rebranding, from Catholic Healthcare West to the Dignity Health brand, #HelloHumankindness. Here’s more on that good business case here in Health Populi

2 Comments on Will Getting Bigger Make Hospitals Get Better?

Merger mania – is it good for the patient? | sueschade said : Guest Report 5 years ago

[…] Sarsohn-Kahn, health economist, wrote a great piece earlier this month – “Will Getting Bigger Make Hospitals Get Better?”.  She talked about the value that matters to patients — the trust that is needed between […]

John Morrow said : Guest Report 5 years ago

My favorite topic – “Systemness” Many of the companies named in this list aren’t actually systems…it’s an oxymoron. Some are portfolio companies, some are holding companies, some are loose affiliations of like mindedness and a few actually are doing the harder work to build integration…of all sorts. Few of them can accomplish on a system level the variety of things that need to happen locally to make a difference for consumers. Some have failed completely in their aggressive role to become larger and somehow more efficient, and others have succeeded by keeping to their knitting. The CHI/Dignity merger is a curious example where the “benefit” of the merger, no overlapping markets, is likely it greatest weakness. 1+1=2 in their case…and in fact it is more like -1+1=1.x…you pick the number, but success should not be measured by press ink in your merger announcement. Their costs are still too high for the industry and that all flows down to consumers…if that is your bent here. The non-profits should seriously look closely at the failures of CHS, Quorum, Tenet and others…as their business thesis has been utter failure. Even HCA is stepping on thin ice by overpaying on their most recent announcement. Aggressive expansion by folks like Geisinger (getting ready for a downgrade), MaineHealth (a strategy without a plan, or much money) and many others simply shows that one doesn’t have to be smart to grow, nor smart to fail. The savings have gone from group purchasing, shared services and most economies of scale. Hospitals are capital intensive businesses, require huge fixed costs and expensive variable professional costs to operate. Half the hospitals in America have zero or negative operating profit margins, and half the beds sit empty…all the while consumers are moving to HDHPs, spending their own money and moving services to ASCs, Urgent Care and Convenient Care. Disruption in health care is possible however, look what Bill Simon did for all Americans as CEO of Walmart, introducing $4.00 prescriptions into the lexicon of Rx. He told me in an interview that they made money on nearly every drug they sold and that the only way to get there was to re-base ALL of the costs; manufacturing, supply chain, distribution and the like. Go figure. If hospitals, big or small are going to make a significant impact, they are going to need to re-base their costs. That does not speak well to the ones that are expanding their infrastructure. I am pro-hospital, as I think every community needs a good one, I just think the world needs to change so every community can afford one.

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