Some experts suggest the recent high-profile merger agreements between health systems, such as the proposed deal between St. Louis-based Ascension and Renton, Wash.-based Providence St. Joseph Health, will trigger other hospitals and health systems to engage in similar transactions to ensure their survival in the industry, The Washington Post reports.
For Leemore S. Dafny, PhD, a professor of business administration at Boston-based Harvard Business School, transactions like the proposed Ascension-Providence St. Joseph deal seem like a last-ditch effort by the health systems to secure their position among a sea of competitors.
"It feels like a land grab on the part of some systems, seeking to get larger," Dr. Dafny told The Washington Post. "Once a couple of these [deals] are announced, then more start to get underway, because people don't want to be left out. ... There's a widely held belief among health system executives that costs are lower when you have a bigger enterprise."
While hospitals generally claim large-scale mergers provide the institution with more leverage when dealing with other aspects of the industry, Dr. Dafny's research suggests the type of deal matters more. Her findings suggest hospital acquisition deals between health systems in different states have no effect on prices. However, deals involving health systems in the same state lead to price increases.
John Hanley, managing director and head of healthcare finance at the investment bank Ziegler, similarly said, independent of the pricing component, the shift in deal methodology is a trend that will most likely continue into 2018.
"It's like a domino. If you're a multistate system now and you see these multistate systems getting bigger, how do [you] respond? How do [you] react? The easiest reaction is ... some [health systems] will jump into [dealmaking] and get bigger," Mr. Hanley said.