• Acquisitions and Affiliations: Why Transparency Matters

    Aug 20, 2014

    Speculation about links between market consolidation and prices abounds. But no one is better able to assess the impact of an affiliation or acquisition on prices—if any—than the organizations involved.

    pg61_column_fiferHealthcare industry consolidation is increasing—along with the size of the resulting organizations. As described recently, “dealmaking in 2013 created giants with multibillion-dollar annual revenues that rival some Fortune 500 companies” (Evans, M., “Consolidation Creating Giant Hospital Systems,” Modern Healthcare, June 21, 2014).

    A survey of HFMA’s senior financial executive members, conducted in the fall of 2013, showed that more than 80 percent of respondents had entered into an acquisition or affiliation arrangement or were actively considering or open to the idea. Industry consensus is that the movement toward consolidation is real and that it will continue. But there is disagreement about whether this trend will affect prices—and if so, how.

    Assessing the Impact on Prices

    Some fear that consolidation will create higher prices for consumers and lead to a healthcare landscape that is antithetical to healthy competition.

    Others make the case that large, integrated providers will be able to offer higher-quality services, better coordinate care, reduce unnecessary duplication of services, and cut costs. In short, proponents say that realignment will improve value by bringing about better quality of care at lower prices.

    Linking Realignment and Value

    A new HFMA report unveiled at ANI, Acquisition and Affiliation Strategies, found ample evidence in support of a link between realignment and improved value. Through interviews with experts and providers, we identified a trend toward value-focused acquisitions and affiliations that are strategically designed to improve the quality and cost effectiveness of care. Market share for the realigning organization also is likely to improve—not because the newly larger entity is flexing its pricing muscle, but because it can demonstrate a superior value proposition in a competitive marketplace.

    Showing—Not Just Telling

    If an organization is delivering greater value through its affiliations or acquisitions, it should make sure that communities know how they stand to benefit from the change—whether through greater access to a physician network, improved coordination of care, or enhanced connectivity among providers. In light of ongoing concerns about the impact of consolidation on prices, it’s important to be transparent about pricing, too. It’s not enough to claim (or even to document) that costs are going down. Ideally, an organization should demonstrate that those cost savings are being passed along to patients and other care purchasers.

    Making the Case

    Research on the impact of consolidation on pricing is limited and inconclusive. For those that are affiliating for the right reasons, this poses a challenge—but also an opportunity. Each organization is in the best position to make the case that an acquisition or affiliation has not led to higher prices in a particular market area. No research study can address community-specific issues and concerns as well as the organizations that serve that community.

    Seizing that opportunity will require a commitment to price transparency that is new for most. But the time for rationalizations like “it’s complicated” is over. A transparent, retail market forces organizations to stand behind their pricing and encourage consumers to choose value—and not just for certain “strategically priced” services. Soon enough, price transparency will be a requirement for doing business. There is still an opportunity to be proactive about leading the change.

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