When Competing Hospitals Come Together

MANY ANATOMIC PATHOLOGY GROUPS that have enjoyed contracts with one or more hospitals for decades now find those relationships challenged or disturbed by the spate of mergers and acquisitions happening with hospitals and health systems. This trend will carry forward for several more years.

At least two distinct forces are encouraging hospitals and health systems to collaborate, merge, or acquire. First, if two important hospitals in a community can come together, it improves their ability to contract for higher prices with private health insurers. Last month, The New York Times wrote a story about how the 1994 merger of Massachusetts General Hospital and Brigham and Women’s Hospital to form Partners HealthCare resulted in giving “the hospitals enormous market leverage to drive up healthcare costs in the Boston area by demanding high reimbursements from insurers that were unrelated to the quality or complexity of care delivered.”

On that same point, last week The Wall Street Journal wrote about how such mergers in New York had raised concerns that hospitals involved in these transactions would be able to raise prices without offering any improvement in the quality of care.

The WSJ pointed out that “in New York state, at least a dozen hospitals, many of them financially ailing, have become part of larger networks since 2011, according to the state Department of Health. More than a dozen hospitals have new owners or new affiliations in New Jersey during the same period as well.” Pathologists should take note of how much merger activity is happening.

The second reason why hospitals that were long-time competitors are collaborating, merging, or acquiring is to counter the narrow networks that payers are developing. A solo hospital in a community is easy for a payer to exclude from a network. But if the community’s hospitals are all under one health system, payers are more likely to include them in provider networks.

For community pathology groups, such merger and acquisition activity can represent an opportunity to recast the clinical and business relationship with their hospital or health system administration. This is particularly true if the individual pathology groups involved in a merger decide that they can also work closely together, whether through tighter collaboration while remaining independent or through a merger of their groups.