Healthcare M&A Pitfalls

Healthcare mergers continue to occur at an accelerated pace and are leading to challenges in efficiencies and care.  Just recently Beth Israel Deaconess Healthcare and Lahey Health merged and Partners HealthCare proposed to acquire Care New England.  Hospital M&A isn’t a small game; in 2018 the average seller size was over $400M.  There were even seven transactions last year that featured health system sellers with over a billion dollars in annual revenue.

The House Subcommittee on Antitrust just met to discuss these mergers and came out of the meeting with a rather bleak view of the results that are being produced.  The high quality and more efficient care that is often promised by these mergers hasn’t been delivered.  Additionally, in places like rural communities where healthcare options are already limited, mergers only serve to exacerbate the lack of choice.  There’s a delicate balance between mergers that allow local hospitals to remain open and shifting care to larger, and often much further away, facilities.

One of the big barriers to gaining efficiency in a merger is the absence of a common EHR.  Some 44 percent of M&A activity has left hospitals using different EHRs.  What’s more is that merger activity is also causing a consolidation in the EHR market, as most acquired hospitals that did switch moved to Cerner or Epic.  All in all, only a third of acquired hospitals switched to the acquiring system’s dominant vendor.

Subcommittee Chairman Jerry Nadler (D-NY) argued in the hearing that hospital consolidation leads to both higher prices and a reduction in quality of care.  This issue was before the Antitrust Subcommittee because these mergers are often leading to noncompetitive situations in which hospitals are able to negotiate more favorable payment terms.

While merger activity has promised great things, the reality of implementation simply hasn’t lived up to the expectations.  While nothing has been finalized yet, recommendations were made that called for increased scrutiny of these mergers and a removal of policies that are making it harder for new competitors to get into a market.  It seems that increased competition will allow for patients to have better healthcare and more access to it across the board.

About the Author: Chris Mack

Chris is a Marketing Manager at Extract with experience in product development, data analysis, and both traditional and digital marketing.  Chris received his bachelor’s degree in English from Bucknell University and has an MBA from the University of Notre Dame.  A passionate marketer, Chris strives to make complex ideas more accessible to those around him in a compelling way.