American Medical News
By — Posted June 17, 2013
With the full implementation of the Affordable Care Act next year, hospital mergers probably will be on the rise if the situation in Massachusetts, an early adopter of health system reform, is any indication.
In a June PwC report about health care in Massachusetts, researchers said the state’s health care trends, such as greater consolidation, are likely to be mirrored in the rest of the country. PwC said one of the most visible and profound changes was that one-third of the state’s 70 acute care hospitals have merged, acquired or partnered with another system in the first six years since Massachusetts implemented its universal health care program in 2007, and an additional 20% are in discussions to do so. Only 9% of Massachusetts hospitals are fully independent.
“One of our conclusions is that it’s going to be increasingly difficult for stand-alone community hospitals to survive this new environment,” said Ceci Connolly, managing director of PwC’s Health Research Institute. “They don’t have the efficiencies of scale to compete with the bigger players.”
The PwC report said not every state might have the same experiences as Massachusetts, post-reform. However, it said that state provides an indication of general trends the ACA could bring.
One reason for the consolidation interest was that hospital operating margins in Massachusetts, which are already below the national median of 4% to 5%, fell in the first years after the state implemented its universal insurance program that became a template for the ACA. In April 2006, Massachusetts adopted health system reform that required all adults to carry health insurance. Businesses with at least 11 full-time employees must make contributions toward insurance coverage or pay up to $295 per employee annually. State residents need to carry insurance or pay a penalty equal to 50% of the lowest health insurance premiums available for each month they didn’t have insurance. The state offers a 15% rebate to lower-wage small businesses that offer wellness programs.
The state’s community hospitals consolidated mainly because they improved financial positions when they aligned with larger systems, helped offset costs, and maximized returns on new payment models and referrals, according to the PwC report. Safety-net hospitals’ reasons were slightly different. They wanted to find partners that were financially stronger, especially after the state reduced payments for low-income patients and they stood to face more cuts under the ACA, according to the report.
The PwC report, as well as health leaders in Massachusetts, said consolidation also occurred because of efforts to find ways to make the system more efficient, especially as payments changed so that physicians and hospitals were given incentives to do more preventive and coordinated care.
Consolidation is the first step toward providing coordinated care that the state hopes to achieve, said Ronald Dunlap, MD, president of the Massachusetts Medical Society. Consolidation allows for the formation of patient care networks that provide the infrastructure that ultimately leads to patient-centered medical homes and accountable care organizations, he said.
In a separate report issued in June, the American Hospital Assn. said mergers aren’t necessarily a bad thing, because in many cases the acquired hospital is a small or community facility that otherwise would be at risk of shutting down because of financial issues. The AHA report said about 10% of community hospitals had been involved in mergers or acquisitions between 2007 and 2012.
The PwC report said what’s going to drive the formation of more coordinated care models in Massachusetts is the state’s purchasing power to provide health care to government employees, which probably will shift physician practices and hospitals in the direction of more efficient delivery models, which is expected to reduce costs.
However, PwC reported that not as much money was saved as predicted. To keep costs under control, the state passed legislation in 2012 that pegs health spending to Massachusetts’ economic growth and requires greater transparency for hospital, health system and insurance company financial information. The state may require any hospital that exceeds the annual cost rise target — which is 3.6% in 2013 — to develop a performance improvement plan to lower costs and pay a fine of up to $500,000. The PwC report said this measure indicates the challenges of keeping cost growth low over the long run.
As Massachusetts found out, it takes a few years before formerly uninsured patients use their health insurance appropriately by seeing primary care physicians instead of waiting until problems become so severe that they go to emergency departments, Connolly said.
About 34% of surveyed respondents used EDs in 2006, but about 30% did in 2010, according to the PwC report. Dr. Dunlap said ED admission rates have not fallen off as sharply in rural areas. “There’s been either a paucity of [primary care] providers in some [rural] areas,” he said.