In the Health Care Industry, One Thing Is Certain: Organizations Will Keep Merging

Partnering, pairing, associating. Whatever you want to call it, health care organizations will continue to merge.

This article appears in print in the March 2018 issue. Click here for a free subscription.

Dealing with the minutiae and petty squabbles of day-to-day operations doesn’t leave much time or opportunity to take a step back and see the forest as well as the trees. Putting out the daily brush fires obscures whether the entire forest is ablaze.

Thus, the many new-year forecast pieces are far more valuable than merely filling empty column inches in the Christmas-Eve-to-January-2 news vacuum. They’re a way of prompting some deep thinking and conversation about strengths, weaknesses, opportunities, threats, trends, issues and what’s lurking just over the immediate horizon.

Providence St. Joseph, the Renton-based health care conglomerate that includes such local operations as Swedish and Pac Med, indulged in its own bit of prognostication about the top agenda items for 2018, coming up with nine predictions. Among the notable forecasts: The industry will push to preserve Medicare and Medicaid, patients will get more technology to manage their own care, and mental-health care and treatment will get a lot more attention.

Also notable, however, was what wasn’t on the list, an issue every bit as big as (not to mention being inextricably entwined with) the other dominant topic, the cost of health care. That issue is the continued consolidation of hospitals, clinics, doctor practices, pharmacies, benefit managers and technology developers into ever bigger, ever wider health care networks.

It’s not that the Providence St. Joseph list avoided the topic entirely; there are tangential mentions in two of the predictions. Example: “Look for traditional but also nontraditional pairings, which can bring care to more people and improve the efficiency of delivery. With the threat of reimbursement deteriorating and more people losing coverage, health care organizations will need to shore up their ability to care for communities, especially those patients who are more financially vulnerable. Benefits for organizations that find the right partners will include lower costs for medical supplies and pharmaceuticals to help stabilize what has been a skyrocketing expense.

And: “Expect more hospitals and health systems to make innovative digital offerings a new source of revenue to offset declining reimbursements from traditional payers. Look for health systems to get directly involved in developing new technologies and ultimately be quicker in bringing new capabilities to the primary care setting. Also, there are many new opportunities to offer value-added products and services directly to the consumer in order to keep them healthy and enhance their care. And, as health systems innovate, they will offer new platforms to other health care organizations so that they, too, can achieve solutions to health care delivery issues.”

“Pairings” is one way of saying “mergers,” and it’s a lot easier and faster for health care systems to add those digital technologies and services by buying their developers, rather than doing it themselves.

Interestingly, the Providence St. Joseph list of predictions came out after the health care system was itself the subject of talk about a combination with another large Catholic health care concern, St. Louis-based Ascension Health. As of this writing, no deal has been forthcoming, but the year is young. Meanwhile, Kaiser Permanente absorbs Group Health. DaVita (which has significant operations in Tacoma and Federal Way) buys a Tacoma physicians group, then sells that entire division to another company. Drugstore chain CVS buys health insurer Aetna. MultiCare links up with a local operator of health care clinics. And speaking of what’s lurking over the horizon, what are Amazon’s intentions in health care?

Revenue and costs are driving the consolidation wave. Health care networks want breadth and depth to keep patients (and the revenue that comes with them) in the system. They want bigness for whatever operating efficiencies come with that.

And they’ll keep looking for breadth, depth and bigness. You can safely put that on your annual list of predictions about health care every year — at least until the list of potential partners and acquisitions is whittled to one.

Bill Virgin is the founder and owner of Northwest Newsletter Group, which publishes Washington Manufacturing Alert and Pacific Northwest Rail News.

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