Six experts on the economics of healthcare explained the financial reasons pushing providers to join major hospital systems during a discussion panel Wednesday at the 2014 Digital Healthcare Conference in Madison.
Hospital mergers aim to enhance patient care from administrative and clinical standpoints, according to Michael Burger, director of Fitch Ratings’ public finance healthcare group. With the current, negative credit ratings outlook on the healthcare industry, Burger said provider consolidation is on the rise because hospitals face a great deal of financial pressure to adopt the health reform law’s regulations and implement new health information technology software while patient volumes decrease.
America’s largest hospital systems command a much smaller share of the healthcare market than the top banks or airlines do in their respective markets, according to Jeff Sahrbeck, managing director of Ponder & Co., a Chicago-based financial advising organization for healthcare companies. Making full-scale changes to boost value and efficiency in the hospital industry is easier to do at a few major systems than intervening at the individual provider level, Sahrbeck said.
“I think that Wall Street is interested in an industry because it is inefficient,” Sahrbeck said. “Right now, healthcare is not doing a good job of providing care in the lowest possible cost setting.”
Despite attempts to move away from the traditional fee-for-service model of care, University of Wisconsin Medical Foundation President and CEO Dr. Jeffrey Grossman said many healthcare providers are sticking with the status quo to remain profitable, and not necessarily doing what will improve the health of the populations hospitals serve.
“We’re all focused on this efficiency business – it’s terribly important to us,” Grossman said. “I have to tell you though that we make our money on waste right now. That’s the name of the game. The balance at the moment is in the wrong place.”
Grossman said he has yet to see disruptive change in the healthcare model intended to reduce waste, which is creating a “huge gap between the rhetoric and reality.” He added providers are still performing procedures that fail to improve the health of those they serve, and revenues and top-level compensation remain high, sometimes at the cost of enhancing the value of care.
“I give him the bad news every month,” UW Medical Foundation Chief Operating Officer Peter Chirstman joked. “Revenue has gone up.”