Consolidation In The Healthcare Marketplace Is Driving Up Costs

In today’s healthcare climate it’s becoming more challenging for hospitals to remain financially viable. This is especially true for stand-alone, independent hospitals. According to Moody’s researchers, median operating cash-flow margins of 160 surveyed hospital systems dropped from 9.5% in 2016 to 8.1% in 2017.[1] What’s causing the decrease in profitability? Higher labor and supply costs, higher drug costs, and lower reimbursement from commercial and government payers. If you’re a small hospital with a tight budget, then you’ve probably entertained the idea of consolidating with a larger system with hopes of controlling costs and growing margins. But the data suggests that both financially and in terms of patient care, consolidation might not be the ideal solution.

The Effects of Consolidation

Across the country, large corporate organizations are snapping up smaller healthcare independents. Today, two in three U.S. hospitals are part of a multi-hospital system. In addition, 1,035 of the 4,840 community hospitals in the U.S. are owned by private investors – that’s 21.4%, up from 16% ten years ago.[2] Unfortunately, hospital consolidation usually does not create the financial efficiencies independent hospitals hope to gain when they agree to an acquisition.

Acquired hospitals should manage their expectations as evidence shows they can realize just a 1.5% gain in marginal efficiency following a merger.[3] Studies also reveal that the average price of hospital services increases 6%−18% as a consequence of these mergers.[4] Consolidation typically results in a rise of prices through facility fees and other fixed costs. Not only is consolidation bad for prices, it can also negatively impact patient care. When hospitals consolidate they concede their independence and are no longer free to make decisions they feel are best for their community, and instead must defer community decisions to a larger corporate entity. 

Collaboration – an Alternative to Consolidation

By many measures, regional coalitions, like TPC, can be a superior alternative to consolidation.   Uniting together in healthcare collaboration allows hospitals to aggregate volume without having to merge assets or concede their independence. A majority of the value is achieved through a shared purpose and willingness to act as a system. As a result, hospitals enjoy greater purchasing power and improved supply chain efficiency all while keeping care local and affordable. As supply costs can account for 25-30% of a hospital’s operating budget, with costly Physician Preference Items (PPI) accounting for up to 60% of supply spend, a collaborative effort can drive enhanced value and improved performance, even in complex categories. As a result, collaborative partner hospitals can realize a 20% decrease in supply costs.[5]

The TPC Model

TPC is a partnership that allows independent community hospitals to aggregate their volume to contain costs and leverage their collective strength and size as if they were a single entity. By collaborating, TPC Member hospitals have driven to improve their individual and combined financial, operational and clinical performance. They work together in supply chain, purchased services and revenue cycle to achieve more together than they could alone.  In addition, TPC clinical and administrative leaders become part of a virtual network in which they can share best practices and drive better decision making in order to improve patient outcomes and satisfaction. By aligning with like-sized, like-minded facilities, Members benefit from economies of scale, pooled resources and collective expertise.

Stronger Together. Superior Results. Visit us online to learn more about TPC today!

[1] http://www.paulkeckley.com/the-keckley-report/2018/9/11/does-a-hospitals-ownership-matter

[2] http://www.paulkeckley.com/the-keckley-report/2018/9/11/does-a-hospitals-ownership-matter

[3] https://www.healthleadersmedia.com/strategy/how-much-can-ma-cut-costs-lower-your-expectations

[4]https://www.ncci.com/Articles/Pages/II_Insights_QEB_Impact-of-Hospital-Consolidation-on-Medical-Costs.aspx

[5]https://static1.squarespace.com/static/52cd8717e4b02c4c62599d9a/t/58d521a1be659456292aada2/1507043003253/TPC_Supply+Chain+World_Spring+2017.pdf

Follow us on social media for the latest updates in B2B!

Image

Latest

Listen Carefully, Respond Creatively
April 12, 2024

In this captivating episode of the Fans First series, Jesse Cole, the mastermind behind the Savannah Bananas, delves into the transformative business philosophy of “listen carefully, respond creatively.” This approach has not only skyrocketed the Savannah Bananas to fame but also serves as a universal blueprint for revolutionizing customer service and engagement across all sectors. […]

Read More
Stacey Childress, Senior Advisor at McKinsey and Company, discusses higher ed
Bold Measures are Needed to Improve Investment in Higher Education
April 12, 2024

The stakes for higher education have never been higher as the educational landscape sees rapid evolution. As universities and colleges grapple with the dual challenges of technological disruption and increasing demands for accessible, quality education, the question of how best to implement investment in higher education becomes a priority. This debate has been ignited […]

Read More
wake up healthy
Hey, it’s 9 am… Wake up Healthy with 9amHealth!
April 12, 2024

Healthcare Rethink host Brian Urban explores ways to wake up healthy and stay healthy with his guest, Dr. Avantika Waring, MD, the Chief Medical Officer, at 9amHealth. This episode delves into the transformative approach to healthcare delivery championed by 9amHealth. Dr. Waring’s journey from a humanities student with a love for French to a […]

Read More
public safety and security
Strengthen Public Safety and Security: Modernize Radio Communication for Better Field Response
April 11, 2024

The importance of radio communication within public safety and security operations remains unbeaten in an era dominated by digital transformation. This medium, essential for over a century, continues to be the lifeline for responders on the front lines. From ensuring the safety of field agents to facilitating real-time critical information flow and enhancing situational […]

Read More