Report: Half of hospital systems could disappear in next decade

In the next 10 years, there will half as many hospital systems as there are today.

That’s the startling prediction published last month by the Deloitte consulting firm. And it will be the subject Friday of a conference in Bloomington, hosted by the Indiana University IU Kelley School of Business and its Center for the Business of Life Sciences.

It’s not farfetched. As Deloitte notes, half of all banks have disappeared in the past 25 years, three of four airlines have disappeared in the past 40 years, and there are 95 percent fewer department store chains now than five decades ago.

And since 2009, the number of hospital mergers has increased 14 percent per year.

This trend will keep going, Deloitte predicts, because of four key reasons: deteriorating finances, the need for major investments in new technology to shift to value-based care, access to capital and the realty that very few hospitals have made themselves “invaluable” to consumers and the organizations that fund their care.

“As health care stakeholders—especially consumers, health plans, and employers—seek increased value and lower costs, many health systems may find themselves vulnerable to disrupted referral patterns and revenue loss,” the Deloitte consultants wrote in their report on hospital consolidation.

The merger trend was well underway among the more than 160 hopsitals in Indiana from about 2007 until 2011 as the larger hospital systems acquired smaller peers.

Dan Evans, CEO of IU Health, even predicted that the four large systems in Indianapolis would become two—at least some time in the next three decades.

“It’ll probably be IU Health and the Catholics,” Evans said in an April 2013 interview.

But that trend slowed to a crawl after Indiana’s county-owned hospitals discovered they could gain extra cash by forming novel partnerships with Indiana’s nursing homes. Those deals are now bringing $313 million in new money into the state, which is being split between the hospitals and nursing homes.

Still, merger announcements have picked up again this year around the state, even though the major central Indiana hospital systems haven’t been as involved.

Clark Memorial Hospital in Jeffersonville announced its plans to join Louisville-based Norton Healthcare as a way to save money without cutting jobs.

Bloomington’s Monroe Hospital found a way out of bankruptcy reorganization by selling itself to California-based Prime Healthcare Services.

Wabash County Hospital formed a partnership with Fort Wayne’s Parkview Health, which will help it finance a new facility. Indiana University Health’s LaPorte and Starke hospitals are looking for an additional health care entity to partner with them.

Those kinds of partnerships could be the way consolidation happens, Deloitte said in its report.

Partnerships that were a step or two short of an outright merger was the idea behind Community Health Network’s plan to form a joint operating agreement with Eskenazi Health, as well as Community’s effort to form an accountable care consortium with St. Vincent Health and the Suburban Health Organization hospitals.

Both of those deals fell apart. But hospital consultant Elizabeth Walker still expects hospitals to keep trying to strike such deals.

“Despite the unraveling of these deals, Indiana is ripe for additional consolidation,” Walker, a former Deloitte consultant who now works for ECG Consultants, wrote in IBJ last month. “Organizations will need to pursue alternative arrangements that are less integrated than a full merger, yet effective in managing population health.”

Of course, this isn’t the first time such predictions have been uttered. Hospital accountant Ed Abel remembers that in the 1980s, national consultants were predicting rapid consolidation of hopsitals in response to the severe financial pressures of those days.

"I think there’s always this vision or perception that things could continue to consolidate into a small number of ultimate providers," Abel told me in May 2013. "Back in the mid-'80s, as I was trying to look at different career options, there were some people saying within five years, there would only be four hospital systems in the entire country."

Obviously, that didn’t happen.

But with consumers and employers and health plans demanding to spend less on health care, consolidation is one obvious way to save money.

So count on seeing fewer hospital names in the future, not more.

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