Big Health is Here

Posted on May 14, 2013

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You’ve heard of Big Auto.  Big Oil.  Banks too big to fail. Now introducing:  Big Health.

The nation’s largest merger of two health systems, Trinity and Catholic Health East, went final; no anti-trust issues.  This merger creates the second-largest system in the U.S.

Ascension Health is still the nation’s largest system by operating revenue, and likely beds (15,700+).  The Trinity / CHE unit will have coverage of twenty-one states to Ascension’s 16.

With Ascension around, hasn’t Big Health already been in existence, you ask?  Not really.  Yes, there was Ascension, and a handful of publicly-traded large healthcare providers, but nothing this big.  The main ideas on why this deal is important:

  • It is the first really big merger allowed to complete.  This new system was big immediately.  Ascension generally grew by accretion over time.
  • This deal signifies a legal willingness to approve large-scale mergers if it benefits the public.  Anti-trust is a big sticking point with activity like this, and more than a few mergers have hit very public roadblocks due to alleged anti-trust provisions, which the Attorneys General feel can compromise long-term competitive pricing and access.
  • This merger continues the consolidation trend in healthcare.  Trinity / CHE is emphatic proof that bigger is better.  These systems were very healthy independently, and were not running for cover.  The days of the independent generalist hospitals appear numbered.

Healthcare is following the trajectory of banking I alluded to in the past.  Perhaps 20 years in the future, a handful of large, national healthcare systems will provide quality with coverage at reasonable costs.  Small, boutique hospitals will still exist, much like credit unions and small local banks still exist, but those hospitals will not be doing a lot of what the big players do, and definitely not in volume.  Much like a credit union would pass on certain business, smaller hospitals will likely pass cardiac surgery and other complicated, expensive specialty treatments to the nearest national healthcare chain.

The fear then, for patients (aka, the general public), is that should healthcare become too financially distressed (over-regulation, runaway torts, changes in tax law), the government would need to bail it out.  And unlike the U.S. auto makers, which are not essential to life and survival, healthcare is.  If General Motors or Ford went out of business, Toyota or Honda would have swelled to fill that void, including hiring laid off workers, in a heartbeat.  Your local hospital system shutting down would be like the electric company or water utility shutting down; quality of life would take a precipitous nose-dive.

An inherent beauty in Big Health is most of it is non-profit (not reliant on the stock market), and privately financed (not reliant on banking).  Sure, hospitals have used bank money to finance capital projects, but they have managed to wean themselves from loan and bond money since the 2007 credit debacle.  Hospitals have been thrifty about spending money since 2007, especially money they don’t have.

Healthcare is, however, dependent on the insurers.  Woe to us if there is an insurance meltdown.  And if people cease legacy giving and philanthropy (statistics suggest there will be a post-Baby Boomer philanthropy crisis), non-profits like hospitals could be in trouble.  But those are everyday concerns hospitals continue to deal with, no news there.

What is exciting is the transformation of healthcare before our eyes.  As a patient, I await the service improvements that the laws of economics suggest follow any consolidation.  The hospitals are surely not entertaining mergers and acquisitions out of boredom.

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