Healthcare Mergers Drive Need for Value-Based Care

Mergers of providers and health systems have been steadily increasing over the last few years, but in 2020 mergers slowed for most of the year due to COVID-19. Now mergers are back in force and are predicted to have a boost in 2021 as providers try to recover from slowed revenue in 2020. In a recent survey, 41% of healthcare CFOs predict that consolidation will be a major aspect of 2021. As these mergers occur, they will have multiple impacts on the market. Some recent examples: Atrium is partnering with Wake Forest University Health System in North Carolina; Northwest Community Healthcare and NorthShore University Health System in Illinois; and CareFirst has acquired University of Maryland health plans. All of these acquisitions appear to be focused not only on increasing market share, but on building out care in a cost-effective way, especially through the lens of value-based care.

Mergers cause markets to become tighter and harder to negotiate in the standard fee-for-service approach. By pivoting towards episodes of care and other alternative payment models, payers can focus on quality providers providing cost-effective care. This allows them to effectively bend the cost curve, rather than succumbing to rising costs typically seen with large mergers in a market.

Major hospital systems often have difficulty recognizing opportunities within their own data. This becomes even more complicated when data is merged between two systems with different protocols, care paths, and cultures. We will see more reliance on electronic health record (EHR) applications as a neutral ally throughout the merger process. Health systems will utilize their analytics to identify insights and opportunities for quality improvement and cost savings. EHRs will be focused on building internally or partnering with existing value-based third parties to help identify provider care path improvements. EHRs will concentrate on using analytics in which providers can feel confident in and trust, guiding them more quickly into value-based contracts with payers.

As merged health systems focus on their core strengths, they will also look to divest from unsuccessful, high-cost areas. This opens areas of partnership with independent physician and ancillary groups.  Hospital systems can ensure that quality care continues for their patients without trying to own every aspect of patient care. These types of relationships will help strengthen innovation as those who specialize in end-to-end care coordination will improve the patient experience as a whole. These types of partnerships lend themselves perfectly in the value-based space as they encourage accountability without the need to bring the functionality in-house.

Lastly, mergers of providers and health systems result in larger and more viable data sets that strengthen analytic insights. This is a win-win that allows healthcare providers to partner with research institutions to leverage data to better serve and care for the local population. One example is the recent merger of North Carolina’s Atrium Health and Wake Forest Baptist Health. Here the health systems are expanding research in multiple areas, such as cancer and cardiovascular, expediting innovative discoveries to the community in less than half the time of the national average. Start-up companies are also capitalizing on this model, especially in areas such as cancer research and pharmaceutical research. These companies look for patterns in data to identify novel clinical approaches. They can also test and evaluate the effectiveness of current treatment protocols. Successful pathways are then incorporated back into the health system to improve the quality of care for patients.
Mergers can have an interesting impact on the healthcare industry. Because of the impact of Covid-19 on the healthcare industry, mergers, collaborations, and partnerships will be at a high level in 2021. Clearly, it will not be business as usual for merging organizations as their strategies must consider all financial pressures endured during the pandemic.


Consolidation of Providers Into Health Systems Increased Substantially, 2016-2018
What We Know About Provider Consolidation 
10 Major Healthcare Merger & Acquisition Deals Announced in 2020

Healthcare Merger and Acquisition Activity Increased in Q3 2020

2021 Healthcare CFO Outlook Survey
Healthcare Companies and Health Systems Continue to Grow Through Mergers and Acquisition Despite Covid-19 Pandemic 

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