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Report: Hospital Consolidation Will Cause Massive Inflation

Hospitals and health systems are consolidating at a feverish pace, and this market transformation is gradually giving those organizations an unprecedented form of pricing power, according to an article from consulting firm Alvarez & Marsal.

Healthcare reform is spurring consolidation among providers, which includes hospitals, health systems and physician practices merging into single entities. The reason? Hospitals and health systems are de-emphasizing inpatient visits and are focusing more on outpatient visits and procedures, which are significantly more profitable, at least in terms of revenue generated from private health insurers.

For example, the report's authors indicate hospital profit margins are higher for outpatient services than inpatient services for commercially insured patients, but the inverse is actually true for Medicare margins. However, hospitals are acquiring physician practices and other outpatient facilities — and perhaps converting them into hospital outpatient departments — because hospitals receive "significantly higher reimbursement" for most outpatient services.

Furthermore, a recent report from the Medicare Payment Advisory Commission found that Medicare payments rates for surgeries are 74 percent higher in HOPDs than in ambulatory surgery centers, according to the article.

The authors concluded this continued consolidation of providers will give a select few a market stranglehold on hospital inpatient, outpatient diagnostic imaging and laboratory services, which "are likely to lead to a spike in healthcare inflation," according to the report.

"Market consolidation does not imply a more efficient and effective care delivery system," the authors wrote. "Higher operating profits to major hospital systems will only beckon the need for capitation and the transfer of financial risk to providers. The time for implementation of fundamental [strategic] change in care delivery is now."

More Articles on Hospital and Health System Consolidation:

20 Best Practices for Healthcare Mergers & Acquisitions
Is Hospital Consolidation Exacerbating Higher Healthcare Prices?
To Be or Not To Be Independent: 5 Considerations for Community Hospitals

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