Health System Mergers Don't Meet Expectations In Most Cases

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On October 28th, Lancaster General Health and the University of Pennsylvania Health System announced that they were exploring a “consolidated relationship.” LG Health, a primary care network, would go under the hand of the larger Penn, which offers advanced, specialized medicine, creating a full range of health services. Ann O’Malley, a senior fellow at Mathematica, believes that through the merge, Penn may be aiming to increase market share and number of patient referrals, while LG Health is trying to increase its financial stability and gain access to capital. However, industry experts claim that mergers are not guaranteed to reap benefits.

Martin Gaynor, professor of economics and health policy at Carnegie Mellon University, argues that in actual practice merging organizations is difficult and the efficiencies are not necessarily attainable in practice.

Booz & Co., a consulting firm, claimed that “most deals have failed to live up to financial expectations” in a 2013 study of health industry mergers.

Ann O’Malley says that when health systems expand and gain more power, they have the potential to increase their prices.

Consolidation, driven by the Affordable Care Act, is definitely reshaping the healthcare industry, and Booz & Co. predicted that within the next 7 years, 1/5 U.S. hospitals could be involved in a merger. In most cases, the Federal Trade Commission and the Department of Justice antitrust division must approve hospital mergers.

Health systems claim they have to increase their size in order to stay afloat in the Affordable Care Acts implementation costs and payment cuts. Nonetheless, the increase in size causes organizations to be more impersonal and lose local control.

Summary by MedicalGroups.com

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