Fewer players in US healthcare industry due to Mergers and Acquisitions

Effects of Mergers and Acquisitions (M&As) on The Quality of Healthcare and Costs in America

Published on April 26, 2019 on LINKEDIN

Sunil Wimalawansa, MD,PhD,DSc.,Executive MBA

The Affordable Care Act (ACA) provides a unique opportunity to obtain health insurance for those who could not afford it previously. However, health premiums continue to rise at multiple times that of the rate of inflation. Actions by the healthcare industry, including pharmaceutical corporations, force insurance companies to excessively increase premiums. These costs have been passed on to the consumers either through increased hospital bills or insurance premiums.

The gradual elimination of competition in healthcare-related industries has given few suppliers oligopolistic control over price, leading to escalating costs for consumers. Despite the political fustian, the choices and the access to healthcare are declining while the cost of premiums is skyrocketing for the consumers. Over-regulations by the ACA has forced hospitals and the insurance industry to transform themselves into mergers and acquisitions (M&As) to increase their survival and profitability.

M&As AND INCREASING HEALTHCARE COSTS

One of the stated goals of M&As is to increase profitability while reducing costs for consumers through synergies. However, prices charged by hospitals and pharmaceutical and medical device companies have disproportionately increased. Consequently, profits for the corporations and stakeholders have amplified, and executive salaries and stock options have soared. Wall Street has cheered but Main Street has suffered.

The resulting costs have been passed to consumers as rising insurance premiums, together with worthless deductibles, making personal health insurance un-affordable to many. These monopolistic mergers have created top-heavy giant entities that are out of touch with the reality and the customers. Population growth and aging and rising chronic disease incidences are the main components increasing healthcare costs. Following M&As, the highest growth in charges in the healthcare sector is in “inpatient hospital care;” this is where the management of consolidations are focused; at the same time preventative care is neglected, resulting increase in not only numbers but also seriousness of sicknesses increasing the Emergency Room attendances.

M&A increases healthcare costs:

The goals of consolidations are to reduce cost and increase profits. Examples of such M&As are the unions of Aetna and Humana and Anthem and Cigna. M&As are also occurring in specialty provider industries, pharmaceutical companies and medical device providers, and behavioral health companies. Although, the cost can be reduced though proper management, empirical evidence consistently shows that this has not been the case. Instead, the reduced competition has pushed up hospital fees without a cap.

Many regulations cause significant burdens to physicians to practice medicine. No legislator has the courage to enact a law to cap these out of control escalating costs, drug prices, or malpractice claims. These have worsened because of the lack of regulatory oversight. Health-related M&As have created a negative spiral of rising costs and customer dissatisfaction.

M&AS REDUCE THE QUALITY OF HEALTHCARE DELIVERY AND SATISFACTION OF PHYSICIANS AND CONSUMERS

The essential care needed by most people can and should be provided through primary care physicians (PCPs) and community-based health centers (CBHCs), not by hospital or specialists. This principle is applicable to all countries. PCP-base healthcare is provided at a fraction of the price charged by large hospital and giant conglomerates. Moreover, in larger hospital systems, patients compelled to see a different healthcare provider at each visit experience disruption in continuity of care. M&As have also reduced available options and eroded the quality of care to consumers.

Most hospital M&As have failed to achieve streamlining, improve care, reduce costs to consumers and insurance companies, or improve quality or clinical outcomes. While administrators of merged entities have focused on corporate aspects, healthcare delivery and physician, staff and patient satisfaction have continued to decline.

Taking away competition inevitably increases healthcare costs and reduces choice, which is bad for consumers and the economy. The current mega M&As create few improvements in quality or access to care or longer term benefits for stakeholders. Administrators of large systems put pressure on staff to fill hospital beds to generate income, which may lead to unethical practice, such as unnecessary hospital admissions, procedures, and so forth.

COST SYSTEMS OF LARGE Vs. SMALL ENTITIES

Most healthcare M&As have not worked well for the economy, stakeholders, or consumers. These continue to frustrate Americans and erode their trust. Under the ACA-driven M&As, hospitals are swallowing up physician practices; they have acquired approximately 4,000 practices each year, which forces PCPs to join larger systems for their existence. As a results of ACA, approximately 50% of PCPs have now joined hospital systems, resulting in further reductions in access to healthcare.

Good healthcare delivery is not dependent on writing expensive prescription or procedures, not indicated procedures or frequent visits that demand by some doctors; these are not cost-effective and do not benefit patients. The heart of healthcare delivery should be PCP practices and CBHCs, including the need for preventive care. For most, good healthcare is mundane and includes services that are best provided by PCPs. All healthcare that does not require specialty expertise should be handled by PCPs, thus, should be develop. Therefore, in addition to decentralizing healthcare, nurturing PCP and CBHC practices through incentives is essential to reducing costs and improving access and care.

The current system is dysfunctional, not consumer friendly, and un-affordable for many; it works against the needs of Americans. A healthcare insurance that cannot be used when needed (as recently happening through ACA decree) due to restrictions, high co-pays, and/or exorbitant deductibles, is not worth having.

However, M&As can be beneficial in creating centers of excellence for a few specialized treatments and procedures, providing services, such as organ transplantation, for rare diseases. However, such goals can also be achieved by allowing competition, without escalating prices. Although 75% of healthcare delivery is provided through PCPs, direct primary care and CBHC, those entities receive only 25% of healthcare funding. This anomaly must be corrected.

M&As—shifting away from the free market

Data show larger consolidated hospital systems waste fundsbecause of inefficient process management and exorbitant executive salaries. By contrast, smaller groups and independent physician practices strive to save funds while maintaining quality of care.

In addition, compared to PCP practices larger healthcare entities tend to treat their employees and patients as entities for exploitation. Patients are alienated by deviation from humane approaches; not being treated with compassion as human beings; having their wishes, culture, and social and moral beliefs disregarded; and having their world impersonalized. Although consolidations are supposed to improve the welfare of companies, stakeholders, and consumers, that is not always what occurs. Considering all this, legislation should be introduced immediately to control healthcare industry-related M&As.

POSSIBLE SOLUTIONS

Although healthcare consolidations could improve integration and reduce duplication of services, M&As have not translated into price reductions, improved access or making premiums affordable to consumers. In addition to closing many loopholes, new healthcare legislation (that supposed to replace ACA) should include, among many other key items, controlling M&As of the healthcare industry. There is a moral and fiduciary duty of lawmakers to control escalating costs for the benefit of the citizenry and make insurance affordable and usable.

It is time that legislators should apply anti-trust measures by breaking up the healthcare-related monopolies to promote competition for the benefit of consumers. Although there could be a temporary increase in costs, in the longer term competition will reduce costs and improve access and the quality of healthcare. In addition, controlling M&As will stabilize the market and prevent rising insurance premiums. Currently, the intended competitive advantage of M&As was lost for a number of reasons mentioned. Decentralization of the current healthcare delivery system should benefit consumers and the economy. Moreover, each sector must be scrutinized to eliminate waste, pilferage, fraud, and costs.

CONCLUSION:

The failures of the ACA can be attributed to greed for profits, lack of competition and proper oversight. Consequently, premiums are increasing while access and options are decreasing. Proper monitoring of healthcare-related M&As, which currently lacking, is imperative to curtailing costs and hardships to consumers from monopolized markets. Creating a dynamic healthcare system that increases competition should also allow interstate competition to drive costs lower and improve available options to consumers. While nurturing CBHC and preventive health, the bulk of healthcare and the funding should be directed to these enterprises. The lack of such, reduces options and increases premiums, thus propagating a vicious cycle of financial burden on consumers and the government.

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Professor Sunil J. Wimalawansa, MD, PhD, MBA, DSc, is a physician-scientist, an educator, social entrepreneur, and a process consultant. He is a philanthropist with experience in long-term strategic planning, cost-effective investment and interventions globally for preventing non-communicable diseases. recent charitable work. The author has no conflicts of interest; he has received no funding for this work.

Fewer players in US healthcare industry due to Mergers and Acquisitions

Effects of Mergers and Acquisitions (M&As) on The Quality of Healthcare and Costs in America

Sunil Wimalawansa, MD,PhD,DSc.,Executive MBA

Professor of Medicine | Global Healthcare Executive | Social Entrepreneur

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