Hospital consolidation is gathering momentum across the country and is poised to grow on a much larger scale than before the pandemic, mirroring trends seen in other industries such as banking.
Proponents argue that merging healthcare providers improves efficiency and care coordination, but critics warn that the lessons from banking consolidation — particularly the notion of institutions becoming "too big to fail" — should serve as a cautionary tale for hospitals.
"I spent 30 years in banking, an industry that went through dramatic consolidation and change. Healthcare is at a reasonably early stage of its consolidation and may need to rethink its model," Sue Perrotty, CEO of West Reading, Pa.-based Tower Health, told Becker's.
During the 1990s and early 2000s, large banking institutions such as JPMorgan Chase, Wells Fargo and Bank of America often became regionally dominant. This left rural and underserved areas with fewer banking options, and smaller community banks struggled to compete.
Similarly, an increasing number of health systems are acquiring hospitals in new markets as healthcare enters a "multi-region model." Cross-market deals are becoming more prominent, as well as geographically noncontiguous transactions.
Risant Health, part of Oakland, Calif.-based Kaiser Permanente, is leading the charge here after acquiring Danville, Pa.-based Geisinger Health in April and plans to acquire Greensboro, N.C.-based Cone Health. Risant, which is headquartered in Washington, D.C., aims to acquire five or six health systems over the next five years.
One argument for banking consolidation was the potential for increased efficiency, but those gains didn't always translate to improved services or cost savings for consumers. Health systems will see more efficient administrative processes and economies of scale through consolidation, but they must ensure these do not come at the cost of patient care quality or access.
The challenge will be balancing operational efficiencies with maintaining personalized care.
Large-scale hospital consolidation may lead to regional monopolies, where one system dominates a market — particularly in rural or underserved areas. The argument here is that this could lead to reduced access to care in these regions and the closures of smaller hospitals.
"I worry about small, rural hospitals and their ability to continue to serve their communities. I think healthcare will be smart and start to leverage new technology infrastructures," said Ms. Perrotty, who previously led Wells Fargo's global operations.
Many banking executives previously believed small, community banks would not survive, but the way that they did was by sharing infrastructure, according to Ms. Perrotty.
"[Wells Fargo] shared infrastructure that allowed their banks to piggyback into bigger banks: they could have an ATM, debit cards and many other products and services, which was all done through technology. I think that will happen in healthcare."
Investing in technology and infrastructure may be the key to survival for many smaller, community facilities that continue to face significant financial and workforce challenges.
"Health systems should partner to gain infrastructures, become less obsessed about owning infrastructure platforms, and focus on partnering with leaders in this space," Ms. Perrotty said. "Can they roll out innovative technologies in a broader way rather than hanging their name on the product they built?"
Ultimately, consolidation in banking led to fewer, larger institutions dominating the market, which reduced competition and gave consumers fewer choices. This led to increased costs and reduced the availability and quality of basic financial services for consumers.
Similarly, an analysis of 1,164 mergers among the country's 5,000 acute-care hospitals between 2000 and 2020 found that those transactions increased healthcare prices by 5.2%. The study, published in American Economic Review: Insights, found that 90% of hospital markets are highly concentrated.
The study demonstrates that hospital consolidation can decrease competition and drive up healthcare costs for patients, limit provider choice and reduce care quality. Health systems may need to consider ways to maintain competition and patient choice, even as they merge.
"Having been through multiple mergers in the financial sector, I am not sold that bigger is always better. Big can make it really hard to differentiate," Ms. Perrotty said. "You've got to be really skilled to make the human capital piece work as well as the financial capital in large enterprises."
Larger banks were deemed "too big to fail," but when many did during the 2008 financial crisis, the federal government was forced to intervene, with bailouts having far-reaching economic consequences.
If large consolidated health systems become "too essential to fail," failures or financial distress could jeopardize healthcare access across entire regions. Hospitals are already facing increased scrutiny from federal and state regulators, and policymakers may need to consider how to regulate and safeguard large health systems to prevent disruptions in care in the future.