Healthcare consolidation
Student’s name
Professor
Institution
Date
Introduction
Healthcare consolidation refers to the aspect whereby the recent competitors in the field of health associate to engage in business operations to provide better services and mitigate competition. Consolidation in the sector occurs in terms of mergers and company holdings. The complex and high cost of operations in healthcare sometimes leads for the need of consolidation so that the combined institutions can engage in cost-sharing practices to provide some medical services that could pose a problem in terms of investment capital on equipment and medical personnel. Increase in the small-scale health care service providers creates competition to the massive health organizations which decide to combine efforts to serve collectively (Brown et al. 2012).This paper analyses the trends in the impact of insurance consolidation, hospital mergers and economic consequences on providers and consumers of these services.
Insurance consolidation
Consolidation in the private health insurance sector has led to enormous gains even though large insurance companies with sizeable local market shares receive lower benefits from the health care customers. The tremendous public interest in increased competition in the private health sector to provide cheaper and better health services has gained acceleration in the United States. Enrollment into the health insurance companies by the operators has increased to levels which could never get prospected in the recent past (Dafny et al. 2012). Also, the members of the public have increased the enrollment for health insurance to cater for their needs any time health matters arise. Those who lack the chance for coverage in the public category get forced to purchase private health insurance covers. The rising trend of many individuals getting insurance covers raises the great need for hospitals and other health institutions to consolidate with the insurance companies. The covered people under the insurer acquire treatment in the designated hospitals which have combined with the insurance company (Kirkwood, 2016).
A rising trend in the insurance coverage for the individuals has led to the growth of the sector. The increased health issues in society create the need for security for the high incurred health bills. It remains cheaper to acquire a health insurance cover when the common ailments strike as the company becomes responsible for the bills through the consolidated health institution. Another benefit of insurance consolidation is that the insurance cover with the patient only becomes applicable in the hospital which partners with the insurer. For these reasons, the massive health care institutions strive to associate with as many insurers as possible. The consolidation process has mitigated recent hardships from individuals to cater to private health services. The significant number of the insured falls in the category of the employed with almost everyone having the cover as the employers emphasizes (Dafny et al. 2012).
Health insurance company such as Medicare provides the cheapest health insurance cover with most acquiring free coverage by the government. Many health care companies have obtained consolidation with Medicare as it carries the highest percentage of insured individuals from government support. The health service providers majorly emphasize on the inpatient services to the insured for maximum benefit. The increased concentration on health care consolidation with insurers has been brought by the government’s introduction of the Affordable Health Care Act (Trish, & Herring, 2015). Regulation reforms introduced in ACA creates a competitive edge among the insurance companies in which those seeking for the cover opt for the cheaper alternatives. Product standardization by the law through the reforms leaves the insurers with no choice but stick to the proposed level below or beyond which they cannot go. As the health care service providers continue to seek for insurers with many insured individuals, the insurers also aim for the health care service providers with the best terms of service. Also, the insured seek for those consolidate with health cares with advanced functions
Market competitiveness in health care takes a different route unlike the other services in the market. The Herfindahl-Hirschman index, although attempts to measure the aspect do not provide clear evidence of how the services can get gauged as the other services offered in the business market. Insurance and hospitals employ different methods of market analysis on competition as insurance remains more business oriented as other ordinary business operations. For these reasons, the growth of hospital prices advances in a relatively slow manner. The low prices for the health care services get realistic when they pass to the consumers in the form of lower insurance premiums provided to the insurance company. On a direct basis, health matters tend to remain expensive without the insurance cover (Trish, & Herring, 2015).
The aspect of health and the unpredictable probabilities leads to a dissected trend in which the insured may pay more or less depending on the time when the services become necessary. The beneficiary in the consolidated insurance with the health services provider could have either paid less or more or less for the hospital bill service depending on when the need arises. However, the aspect gets catered for by the other insured customers who spend long times without requiring the services.
Hospital mergers
Hospitals and other health systems merge intending to achieve their goals. The merging deals focus on the expansion of health services for better practices which arise when an association to exchange operational sills gets in place. Operating on a sole basis also inhibit the provision of some of the specialized services for inadequate skills and resources to carry out the operations. The health sector in the past years had limited cases of merging, but the trend is changing as the service providers increase in the health field. Mega-mergers usually result in these association practices. As a result, those services which could not be provided become possible through the combined efforts. Another main reason for hospital mergers is the growing competition in the sector. The small health care centers offer stiff competition to large hospitals by providing equivalent services at better terms (Zuckerman, 2011).
Need to remain effective in the market raise the need to combine efforts with similar health organizations to mitigate the challenge. An example of such mergers includes LifePoint and RCCH health cares in the United States. Although the intention of most merging hospitals is based on the issue of market share, sometimes it remains challenging to have a positive change in the mergers. The merged hospitals also believe to have gained the momentum to explore the international markets with the new phase and improved facilities and health personnel (Lineen, 2014). Practically, the mergers gain popularity in the new markets especially when they enter the territories where health services have remained a challenge over time.
New entrants in the health sector with modern technological devices pose a challenge to the mergers who invest heavily in improving their operation techniques. CVS Health and Amazon pose a challenge to the mergers in the health sector. The massive scale and capital resources brought by the new entrants continue to challenge the established mergers deteriorating their operations. High profits gained by the competitors on an annual basis facilitate the continuous market competition power as opposed to some of the non-profit health care organizations. The new entrants’ moves to occupy the international markets create more tension. Non-traditional competitors to provide more sensitive services such as high-acuity inpatient services that attract the citizens. Patients’ referral to the entrants for the more advanced health services acts as another avenue of taking up the market (Daly, 2014).
The sudden shift into mergers is caused by the transformation from volume to the value of services. A sophisticated management practice requires combined efforts to enhance effectiveness. The Health care Financial Management Association has related the new move to the rising need for advance health care services. Some ailments require specialized care not readily available in many hospitals. Similarly, value-based care requires proper cost evaluation to prevent a negative turnout. Merged hospitals remain with a better capability to provide costly special services for the availability of resources to perform the treatment procedure.
Economies of scale in terms of deliveries, information system, purchased services promote hospital mergers as these aspects enable operations at a lower cost because of the size leading to the reduced price per unit. Providing services for a large patient base allows the reduction of charge for the customers who get the provisions in these hospitals. At the same time, the lowered price attracts more customers to the facilities. This leads into reduced risk during operations in terms of cost-sharing among the mergers. They also enable the achievement of cost and care management and acquire benefits through bonuses and incentives by health care models.
Economic impact
Health care organizations propose on the positive effects of mergers in terms of improved care quality, reduced cost and expanded patient access. All these impacts relate to economic factors as when the value of services lower, different categories of patients would easily access the services. Mercy Health and Bon Secours Health System mergers proposed to a reduced price of services and lead to a high attraction of patients to the facilities who could not afford them initially. Both the service providers and patients benefit. However, the real effect of mergers has claims that the health services cost increases rather than the prospects of reduction (Orzechowski, 2018).
Pooling of risks through insurance policy portrays an image of reduced cost of hospital services. Considering the effect on an individual, the perception remains validated because those without capabilities for expensive health services benefit from the covers. However, when the total value of premiums paid by the insured, the costs reach to the extreme. It is the reason as to why the insurance providers remain in the market for long periods because of such sustainability. Hospitals emphasize on consolidation to acquire the patients served by these insurance companies (Zuckerman, 2011). Maturity period is stressed before the benefits leading to the perception that the company has calculated the interest to avoid impending losses.
Hospitals consolidation with insurance companies gets assured of capability to pay for the bills as opposed to the challenges an individual faces when personally catering for the health needs. The hospitals may either raise the bill slightly or retain it at the normal levels. In other cases, hospitals take advantage of consolidation to reject patients who do not possess the health insurance cover (Kapp, 2016).
Those who cannot afford free insurance cover acquire the monthly or annual burden of paying the premiums despite being in a healthy status and this may deteriorate their economic condition depending on personal capabilities. The weight increases when more than one person has to be covered as in the case where a parent covers all the family members. However, when the insurance is freely catered for by the government, the patients benefit and a positive economic impact get realized. Consolidation has significant benefits to the insurance firms as they gain popularity for being affiliated to given great hospitals. Hospitals also benefit from the alliances as the insurance companies recommend them for services (Kirkwood, 2016).
As opposed to single large scale business operators, have the intention to pool all the resources, work together for improved services but reduce competition to have a fair market bargain. In such a case, patient exploitation becomes evident as no option remains. The challenge intensifies when there are a few service providers in the market. The United States is believed to spend a fortune on health care but remains superseded by the other nations that pay less because of the quality of services provided. U.S spending on health remains disproportional to the quality offered to the patients (Greaney, & Richman, 2018). A high burden remains on health cost leading to continuous economic problems.
Some mergers occur to create a monopoly in the market and the prices they set up remain at ranges beyond the affordability of the everyday citizens with regular salaries hence widening the economic burden. Employing economic theory, many firms in the market create competition that leads to lowered prices of goods and services. On the other hand, concentrated firms serve together and experience reduced competition and in turn increases the commodity prices. The exercised market power and control creates a high demand for services (Kirkwood, 2016).
Monopoly in hospitals does not necessarily insinuate the situation of having only one hospital, but it could be in the form of specialized services which the rest in the market cannot provide. The suppressed patients have no alternative but pay for the expensive services. Market concentration of the medical services causes a burden to patients unless they look for other options in other markets far away from the region which also increases the expenses for transport and accommodation. Herfindahl-Hirschman Index is used as the basis for measuring monopoly, and a value of HHI above 2500 gets regarded as having a high concentration (Orzechowski, 2018).
Conclusion
Insurance consolidation wit hospitals create a mutual benefit to both organizations. On the other hand, the patients have little or no interest depending on the terms of insurance coverage. Health care institutions that emphasize on insurance coverage to offer the services have the agendas to meet their needs leaving the patient burdened with the health insurance coverage. Hospital mergers intend to reduce market competition to regulate and control the prices of medical services for patients who lack alternatives to deal with their health issues. In both cases, service providers benefit from the consolidations and mergers by increasing their revenues while services offered to improve with a low percentage or remain the same.
References
Brown Jr, T. C., Werling, K. A., Walker, B. C., Burgdorfer, R. J., & Shields, J. J. (2012). Current trends in hospital mergers and acquisitions: Healthcare reform will result in more consolidation and integration among hospitals, reversing a recent trend in which hospitals tended to stay away from such transactions. Healthcare Financial Management, 66(3), 114-120.
Dafny, L., Duggan, M., & Ramanarayanan, S. (2012). Paying a premium on your premium? Consolidation in the US health insurance industry. American Economic Review, 102(2), 1161-85.
Daly, R. (2014). Hospital consolidation trend to continue. Healthcare Financial Management, 68(7), 11-14.
Greaney, T. L., & Richman, B. D. (2018). Consolidation in Provider and Insurer Markets: Enforcement Issues and Priorities.
Kapp, M. B. (2016). Speculating about the Impact of Healthcare Industry Consolidation on Long-Term Services and Supports. Annals Health L., 25, 1.
Kirkwood, J. B. (2016). [91WashLRev0253] Buyer Power and Healthcare Prices.
Kirkwood, J. B. (2016). Buyer power and healthcare prices. Wash. L. Rev., 91, 253.
Lineen, J. (2014). Hospital consolidation:“safety in numbers” strategy prevails in preparation for a value-based marketplace. Journal of Healthcare Management, 59(5), 315-317.
Orzechowski, P. E. (2018). The Case for a Private Healthcare Insurance Monopoly. Applied health economics and health policy, 16(4), 433-443.
Trish, E. E., & Herring, B. J. (2015). How do health insurer market concentration and bargaining power with hospitals affect health insurance premiums?. Journal of health economics, 42, 104-114.
Zuckerman, A. M. (2011). Healthcare mergers and acquisitions: strategies for consolidation. Frontiers of health services management, 27(4), 3-12.
At Legal writing experts, we would be happy to assist in preparing any legal document you need. We are international lawyers and attorneys with significant experience in legal drafting, Commercial-Corporate practice and consulting. In the last few years, we have successfully undertaken similar assignments for clients from different jurisdictions. If given this opportunity, we will be able to prepare the legal document within the shortest time possible. If the above sounds reasonable to you, please do not hesitate to write back.