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Health systems exit markets with limited growth potential

Hospital consolidation is accelerating as health systems navigate rising costs, staffing challenges and the need for scale to stay competitive . 

The post-COVID landscape has highlighted stark differences between thriving and struggling hospitals, and nearly 40% of facilities are still operating in the red. Large systems with scale and stability seek opportunities to expand responsibly by acquiring distressed facilities and entering markets where other systems are exiting. 

The high cost of technology is making consolidation a more practical move, helping larger systems spread expenses, enhance services and improve efficiency across their networks, and many systems see geographic diversification as a long-term benefit in the ongoing consolidation trend.

Here are three health system leaders' insights on how hospital consolidation will evolve in the coming years:

Sunny Bhatia, MD, President and Chief Medical Officer, Prime Healthcare (Ontario, Calif.): You're seeing some health systems and hospitals thriving and improving over the last couple of years post-COVID, and you're seeing many struggle. I do think those that are struggling face challenges that may be difficult to overcome with the reimbursement issues or rising costs of care. Those that have scale and the experience to weather those storms have an opportunity, then, for more successful systems like ours — and we consider ourselves one of them — to grow appropriately and responsibly, looking at other market opportunities that a few years ago may not have existed. We are seeing numerous opportunities throughout the country to support more distressed hospitals. 

We ourselves are being very thoughtful and diligent about the approach to ensure that it's the right fit for our portfolio. Other health systems are certainly exiting markets where they don't have scale or certain competitive advantages, and that may present opportunities for other systems to address those challenges as potential opportunities for themselves.

John Beaman, CFO, Adventist Health (Roseville, Calif.): Adventist has acquired five new hospitals in the last 18-24 months, each with different circumstances. One was a standalone hospital that saw value in joining a broader organization to gain clinical expertise, infrastructure and recruitment support at a fraction of the cost. Another was acquired out of bankruptcy. In a third case, we entered a new market to diversify our footprint. 

These acquisitions were driven by business needs, clinical improvements and administrative efficiencies. The cost of entry in healthcare, particularly for technology, is high, but extending resources across a larger system makes it more affordable. We've focused on both geographic concentration and expanding into new markets, allowing us to extend care and fulfill our mission.

Robert Broermann, CFO, Sentara Healthcare (Norfolk, Va.): The trend of hospital consolidation will continue. Although COVID temporarily slowed it, we're likely to see it on a larger scale now. Hospitals and health systems need to grow to stay healthy, but there's a shrinking field of independent providers to join them. We're beginning to get into the later innings. 

The cost of technology and shared services is rising, with AI being a prime example. While we're excited about AI's potential, it's expensive, and spreading those costs across a larger platform allows us to invest more deeply and quickly. As health systems explore the sustainability issue, geographic diversification may also prove beneficial in the long term. 

For example, Sentara and Adventist are on opposite coasts, which may seem non-contiguous, but from a sustainability standpoint, it could be a good strategy. Variations between states and regional cycles might work to our advantage. For the first time, we're starting to consider potential partnerships like this. 

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