News & Insight

Overcoming Market Power Sensitivities in Hospital Mergers: Part 3

By John Marren and Tom Babbo. Edited by Mary Grace Babbo. 

In part 1 of our series on hospital mergers, we discussed the rising trend of health system mergers, and part 2 continued this discussion in terms of obstacles and solutions. Now, in part 3, we’ll delve deeper into how clinical integration is a solution that results in operational and growth strategies for hospital mergers, acquisitions, and affiliations. 

Focus of Hospital Integration

Successful hospital integration involves two categories: upgrading tertiary hospital services under the best care model, and clinically integrating services to improve the quality and efficiency of patient care. 

Best Care Model

There is a current trend where every hospital tries to offer the same broad range of services, regardless of their resources or expertise. Instead, we propose a mutually beneficial joint program to upgrade tertiary services provided at community hospitals & shift complicated cases to tertiary hospitals. 

  • Tertiary and Community Hospitals: Tertiary services are specialized health care services, which require referral from primary and secondary care physicians, for high acuity patients with diseases like cancer or requiring complicated surgeries. These high acuity patients are best treated at well-funded, high end hospitals such as university hospitals or specialist centers that have the funds and prestige to attract highly specialized, expert physicians. 
    • Community hospitals, by contrast to tertiary hospitals, are located in more suburban and rural areas and tend to treat patients at the primary and secondary level, without the same level of specialized expertise as a teritary hospital. Community hospitals may fear that transferring their patients to a higher-end facility for tertiary care means all the patient’s care will be permanently transferred to the tertiary hospital, and they’ll never see the patient again. 
  • Joint Program Solution: The solution is to create a joint program between tertiary and community hospitals to create improved value and patient care for each. With the help of consultation from high-end specialists working at tertiary hospitals, community hospitals can retain more high acuity cases, only transferring patients to tertiary hospitals when more sophisticated care is required. Additionally, passing the high acuity patient’s case back to community hospitals after the tertiary care is administered helps community hospitals retain more business. 
    • At tertiary hospitals, collaboration with community hospitals provides them a broader feeder network of patients, and allows for patient cases to be treated in the appropriate environment. 
  • Lower Costs: This joint program has positive implications for cost of patients’ care and their health insurance. The insurer saves money from patient cases treated in the appropriate environment, and the hospitals reduce complication rates.
    • By upgrading the level of tertiary services provided at community hospitals on a specialty-by-specialty basis and shifting certain levels of care from community hospitals to tertiary hospitals, hospitals can provide high-quality care to patients cost-effectively while demonstrating efficiencies. 

Clinical Integration (CI)

The specific focus of CI is to identify the patient targets of high volume and cost, and, by identifying quality and safety targets, to improve the quality and safety of patient care. 

  • The factors involved in crafting a successful CI program include initial process, cost reduction, site of care, patient expectation, structure, and outcome.
  • High Volume and Cost Targets: High volume and cost targets for hospitals are patients with serious, chronic conditions; or patients that are about to undergo a big surgery or procedure. These conditions and procedures include, but are not limited to, chest pain, heart attack, PCI, heart failure, pneumonia, normal delivery, C-section, bypass surgery, valve surgery, ischemic stroke, total hip replacement, total knee replacement, hip fracture, abdominal hysterectomies, lap hysterectomy, lap and open cholecystectomies, lumbar fusion, lumber laminectomy, bariatric surgery, colon resection, diabetes, deep vein thrombosis, chronic obstructive pulmonary disease, upper gastrointestinal bleed, pediatric asthma, very low birth weight neonates, pediatric appendectomy, respiratory syncytial virus/bronchiolitis, pediatric chemotherapy, pediatric ventriculoperitoneal shunts occlusion, neonatal and adult intensive care unit patients, AHRQ Patient Safety Indicators
  • Quality and Safety: 

Revenue and Savings

  • Sources of Savings: Hospital integration results in savings from reduced patient complications, reduced healthcare associated infections (HAIs) resulting from surgeries, decreased patient readmissions to hospitals, and reduced errors with harm. 
  • Revenue Generated: Revenue to community hospitals is increased due to their increased ability to provide higher level of care, their savings from better management of high volume/cost conditions, their savings from better management of quality and safety, and their better quality care for patients. 

Big Picture Outlook 

  • Alternative to Merging: Hospital integration, if done correctly, can be an incredibly useful alternative to hospital mergers. Anti-trust issues resulting from too much market concentration a merger and CI has to be effective, and be done in a way where it’s not a payment-for-referral scheme (fraud and abuse laws prohibit providers of care paying another provide 
    • Stark law and antikickback statute 
    • Hospitals can negotiate with each other without a merger (act like a single entity and jointly negotiate with commercial payors without necessary merger)
    • The right way to do this makes this not just a payment-for-referral scheme but a program focused on higher quality and care 
    • works particularly well for higher-end hospitals who want to work with other facilities in their community and in outlying areas without the same resources, so that patients can continue to receive the right care in the right setting and the high-end services that are best provided in the tertiary and quaternary environments 



  Aug 31, 2018  |  By    |   On Health Care