Hospital Mergers under the ACA

Posted on: Thursday, October 24, 2013

Hospital mergers have been increasing at an amazing rate in the last few years, and more than doubling in the years between 2009 and 2012, according to the New York Times. While there was a great rush of similar activity in the 1990s, the trend had leveled off for about a decade. In the past, many factors such as corporate consolidation and municipal spending cuts contributed to the merger frenzy. Now, however, there is likely one primary reason for the recent uptick, and that is the Affordable Care Act. 

The Medical Loss Ratio

The ACA contains a provision basically requiring hospitals to limit spending on salaries and administrative expenditures in order to lower overhead costs. This provision, called the Medical Loss Ratio, allocates 80 cents on every dollar to be spent on medical care alone. By merging, it is hoped that hospitals can reduce administrative costs and find ways to increase efficiency. The ACA mandates more coordinated patient care, so the health care industry is increasingly turning to consolidation as a way to cope with smaller profit margins and higher compliance costs.

The end of local, regional hospitals?

For some, the answer would appear to be in the affirmative. Weakened by the recession, and incapable of meeting the demands of modernizing their infrastructure, these institutions are vulnerable to the powerful influence exerted by the big boys. Smaller hospitals, in particular, are realizing that they lack the IT capability and management structure to accomplish the goals of the ACA. Technologies need to be leveraged, and the best way to accomplish that is to drive smaller institutions to join with those which have already made the investments in these systems. 

More independent doctors are also being encouraged to combine their talents with larger institutions. Perhaps this is a way of addressing the shortage of primary care physicians, since specialization has become such a bellwether for medical teaching institutions. More physicians will look to abandon private practice and seek jobs in these higher paying, more advanced hospitals. 

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