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According to one estimate, approximately one-fifth of the hospitals in the United Exterior of Hospital emergency roomStates will seek to merge with other providers within the next five years. This remarkable trend of mergers, leading to “mega-hospital” systems, is the result of several forces within the marketing environment.

Primarily, the Affordable Care Act (ACA), set to go into effect within the next year, will change the very way hospitals and health care providers get paid, leading to new strategic goals for these providers. For example, rather than paying hospitals on a volume basis—the more tests they order, the more they got paid—the ACA seeks to hold the hospitals responsible for the overall costs of care. When a patient is cured during an initial consultation, rather than having to return multiple times to treat the same complaint, the hospital will receive more funding.

In response, hospitals perceive a pressing need to become more efficient in their processes. The days of ordering a vast battery of tests and hoping that one is instructive are gone. However, with better patient tracking technologies, for example, hospitals can ensure that each patient receives appropriate medication. Such technologies often are prohibitively expensive for small, unmerged hospitals. If a hospital system instead can spread the costs across hundreds of locations, the tools become much more accessible.

Furthermore, the new law increases cost transparency, such that consumers can see exactly how much their health care costs—and how much it would cost in another hospital system. In this sense, the trend toward more and more mergers might be problematic. That is, some hospitals might merge or acquire lower cost competitors, so that they can continue charging higher prices for their services.

Such concerns led the Federal Trade Commission to block the merger of two hospitals in Illinois. In that case, the merger would have meant that a single system would provide 64 percent of the available acute care services in the area. Such dominance made the potential for anticompetitive practices evident. In addition, some observers worry about the potential influence of mega-hospital chains on the availability of certain forms of healthcare. Catholic-affiliated hospitals are a large and growing segment, and in many cases, they refuse to provide legal but religiously banned procedures.

In most cases though, these mergers continue with few objections. They are driven by multiple forces: government regulations, revised marketing and business priorities, and consumer demand for affordable, accessible health care.

Source: Julie Creswell and Reed Abelsen, “New Laws and Rising Costs Create a Surge of Supersizing Hospitals,” The New York Times, August 12, 2013

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