Healthcare mergers and acquisitions hit a national high

March 31, 2018 GMT

Hospital mergers and acquisitions have hit a high nationally, as evidenced by two major health care deals announced back-to-back in Connecticut this past week.

On Tuesday, it was revealed that Ascension Health had started the process of selling St. Vincent’s Medical Center in Bridgeport to Hartford HealthCare. The next day, Western Connecticut Health Network — which includes Danbury, Norwalk and New Milford hospitals — announced it would join forces with Health Quest Systems, a four-hospital group in New York, to form a $2.4 billion medical system.

“The standalone hospital has gone the way of the dinosaur,” said Angela Mattie, professor and chairwoman of Quinnipiac University’s Department of Healthcare Management and Organizational Leadership. “There are still some good community hospitals out there, but that’s the outlier, not the norm.”

These deals come on the heels of many other major mergers, acquisitions, sales and other arrangements in the health care field, including the announcement last year that drugstore giant CVS planned to buy Hartford-based insurer Aetna for $69 billion.

“In some ways, health care is like any other industry,” said Patricia Baker, president and CEO of the Connecticut Health Foundation. “Think about banks. How many different banks are there any more?”

In fact, last year hospital and health system transactions nationwide were at their highest point in recent history, according to a report from Kaufman Hall, which provides management consulting and software to various businesses.

Baker and other experts said there doesn’t seem to be an end to this string of health care business deals.

“At this rate, we’re going to end up with a few health systems, and it’s going to be hard for community hospitals to survive,” she said.

Her foundation pushes for health care access for all state residents, particularly low-income individuals.

Deals on the rise

There were 115 hospital and health system transactions announced in 2017, which was an increase of 13 percent from 2016, according to the Kaufman Hall report, which the organization releases annually.

Not only was that the highest number in recent history, but the deals have increased in value as well.

Of the 115 transactions, 11 (including the CVS-Aetna deal) involved sellers with net revenues of $1 billion or greater. This was the highest number of so-called “mega deals” in recorded history.

The report forecast that there will likely be even more activity on the health care scene in 2018. Some of that, Kaufman Hall officials said, will be from relatively unexpected players, such as Amazon, which recently made overtures into pharmaceuticals.

“Innovative companies will be looking to focus on one or more segments of the health care space where they can deliver a more optimal product than exists today. Disruption is guaranteed if they do,” said Anu Singh, Kaufman Hall’s managing director, in a statement.

Locally, experts agreed that these big business deals involving hospitals and other health care businesses won’t be ending anytime soon.

In the case of both the St. Vincent’s-Hartford deal and the Western Connecticut-Health Quest deal, the transactions would mean an expansion of coverage areas.

St. Vincent’s would be Hartford Healthcare’s only holding in Fairfield County, meaning it would be encroaching onto territory previously dominated by Yale New Haven Health Systems, which includes Yale New Haven, Bridgeport and Greenwich hospitals.

The merger between Western Connecticut and Quest, meanwhile would create a seven-hospital network serving 1.5 million people and stretching from the Hudson River to the shores of Long Island Sound.

Why this happens

The reasons behind this boom in health care deal-making are clear, Mattie said, and financial health is chief among them. These mergers, sales and partnerships “have the potential to decrease administrative costs and lower overhead,” she said.

However, there has been some disagreement over how well these arrangements cut costs, and whether any potential savings trickle down to the consumer.

A study released by the Robert Wood Johnson Foundation in 2012, for instance, showed that hospital consolidation usually results in higher prices. In some cases, the research showed, the increase was as high as 20 percent.

Baker said, though the report is a few years old, it speaks to an important point. Hospital mergers decrease competition in the marketplace, she said.

“Competition often leads to lower prices,” Baker said.

But Quinnipiac’s Mattie argued that there are some potential benefits to consumers from these transactions. For one thing, when hospitals join a health system (or two health systems merger) there’s a bigger “brain bank” of both administrative and clinical staff to draw from, she said. Also, further consolidation could lead to better access to patient medical records, which Mattie said could eventually lead to better research and better patient care.

The bottom line, Mattie said, is that discussion around mergers and acquisitions in the health care field need to start centering on how to provide lower cost and better care to consumers.

“That has to be the dialogue — striving for value,” she said. “We’re too costly and we’re not safe enough. We’re all going to be patients at some point in our lives.”