Question

Will we see an increase in healthcare system consolidation over the next 4 years? If yes what type of systems will be the acquirers and why? If not, why not, and what will the successful independent system look like? Discuss rational for consolidation with both offensive and defensive logic. Discuss the perspective of at least one external constituency. In other words for example will a Biden Administration be a supporter or opponent of consolidation.

Answer 1

Consolidation is the merging of two or more companies either by a merger, acquisition, or transfer of assets.  This is done to manage cost savings and increase care coordination and resources but it may pose some serious issues as well which will be discussed later. Consolidation is of two types: Vertical and Horizontal.

Vertical Consolidation or Integration the combining of two companies with different lines of work. When a hospital purchases a post-acute surgery care center, it is called Vertical consolidation and it is done to provide better health services post-discharge from the hospital.

Horizontal Consolidation is the merger of two companies or businesses with the same line of work. Two hospitals or two health insurance companies merging together will be called a horizontal consolidation. This is done to make cost savings and to gain negotiation power.

Looking at the recent trends, healthcare consolidation will continue to happen. Consolidation in healthcare has increased in recent years by about 25% from 2004-2011. Consolidation can help save costs to the company and negotiating power in insurer-provider contracting.

Acquisitions of companies that are responsible for making medical advancements and new equipment will get bought out by big healthcare firms. Other provider care homes and facilities will also be on the market to improve clinical care.

Acquisitions of smaller hospitals by bigger Hospitals will not take place for quite a while as there are more than 60% of hospitals were part of a bigger facility.

Consolidations of healthcare firms do have both upside and downside:

Pros of Consolidation:

• Enhanced clinical care: Merger can lead to better service, a variety of professionals, and advanced medical equipment
• Care for more patients: Some doctors might be practicing alone which increases the number of tasks they have to perform on their own, some of which they might not be trained well. A merger can open opportunities and give the practitioners a chance to learn and grow and help people serve better.
• Access to better technology: It can sometimes happen that a patient might be needing a specialized treatment for which they need to be transferred to a different hospital. In case of a merger, This transfer can go on smoothly as all the data and information about the patient is already shared among the professionals and proper treatment can be provided without any hassle.

Cons of consolidation:

• Culture clash: The way of working in one facility might be different from another facility. The management of patients, Tasks, and records might be done entirely differently from one facility and the other. In a Merger, this may lead to work culture clash and arguments may arise which may create roadblocks and the patient has to suffer due to differences in opinion.
• Technological differences: Computer systems and other machinery might be different in different facilities. In a Merger, Everyone might not be able to operate them properly without any formal training which may incur some additional costs. It may also create errors in taking readings which might lead to incorrect diagnosis and cause harm to the patient.

The Biden Administration is not very fond of these Healthcare consolidations and will also assess some of the mergers that took place during Trump's rule. The government will look into these mergers for potential impact on competition, prices, healthcare workforce, and racial inequality to some extent. The fundamental policy will be focused on targeting healthcare providers which could have a negative impact on these providers. Biden's Administration needs to come up with a plan to help providers better while also increasing value-based care. Vice President will be at the forefront of this with her expertise in tracking down pharma companies in california.