Healthcare systems that merge with the goal of realizing greater economies of scale are often tripped up by a few common factors.
To identify the missteps that explain the lack of systemwide scale, PwC's strategy& analyzed data from CMS on the cost structures and patient encounters at 526 healthcare systems and 5,661 individual facilities in the U.S., including both for-profit and nonprofit organizations, as well as teaching and non-teaching hospitals.
Here are the four common pitfalls that can reduce the benefits of scale among merged healthcare systems, according to the report.
1. Individual facilities operate with too much autonomy within the system. Instead of collaborating to achieve the broader goals of the newly integrated system, oftentimes hospital executives' decisions aim only to improve the performance of their individual facility. This approach is often driven by the belief that healthcare is local, and individual facilities can deliver the greatest value to its communities by operating relatively autonomously, according to the report. Although facility leaders and physicians might fear that standardization and efficiency protocols implemented across the healthcare system would erode the facility's local elements, incorporating such protocols is an important element of capturing the benefits of scale.
2. The healthcare system doesn't work to overcome the tendency among hospital leaders to operate independently. Many management teams continue to only evaluate hospitals independently instead of as a part of the overall system. Similarly, employee incentives often reward star performers at a single hospital, not as part of the integrated system. As a result, facilities within one system effectively compete against one another for patient volume instead of collaborating to offer the highest value and sharing resources and strengths.
3. The merger fails to emphasize the importance of cost synergies. Health systems often acquire other systems or hospitals to be competitive; as a means to expand the portfolio from a geographic, service line or technological perspective; or to gain leverage with payers, according to the report. These demands often mean there is not enough pressure on the health system management to identify and realize the potential cost synergies from the merging entities, according to the report.
4. Leaders prioritize the short-term goal of closing the deal over the long-term goal of integrating the new entity. "Even when synergies are an explicit goal in a merger, the focus is frequently on reducing [selling general and administrative] costs rather than clinical costs, which are more difficult to capture," the authors of the report wrote.