The Berger Health System merger with OhioHealth that took place earlier in the year has various implications on the industry and patients. In the past couple of years, Ohio has seen a handful of other significant hospital mergers. For instance, the Cleveland Clinic purchased Martin Health System, in a deal worth $500 million. And, in a deal with a much larger price tag of roughly $1.2 billion, the Mercy Health System in Cincinnati merged with Bon Secours, a Maryland-based hospital system.
Small hospitals cite low reimbursements from medicaid and other government insurance programs as a chief reason for pursuing mergers and acquisitions. Hospitals need to achieve a certain scale in order to break-even or make a profit and they need more negotiating power, which is often achieved by consolidation. However, according to a recent New York Times article, patients generally pay more when hospitals are merged. The findings were mirrored by a report conducted by Gaynor and Town, which stated that an average price increase of 20% was realized by consumers following a hospital consolidation.
There is one major risk involved with hospital mergers and acquisitions that may not be considered prior to a merger or acquisition transaction, as it does not show up on paper. A difference of culture could lead to a clash with staff and hospital leadership. According to a recent Booz and Company report, one-in-five hospitals begins to lose money after a merger, and 59% of acquired hospitals lose money within two years. The report attributes these losses to merging of dissimilar cultures as well as unfocused management.
SBCO has looked at the issue of hospital mergers and acquisitions objectively. That being said, our original hypothesis was in fact confirmed by our research. We have concerns that the existing doctor shortage will be compounded by consolidation of hospitals. Larger hospitals appear to be looking at market share as a success factor rather than considering patient and physician quality of care and culture.