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Mergers and consolidations should be saving hospitals money from having benefits of scale, but a new report by PwC finds this isn't the case.
Health systems could save money by consolidating systems and processes, especially on the clinical side, according to the PwC report published March 15.
Costs could be reduced by 15 to 30 percent, said two of the authors interviewed, Anil Kaul and K.R. Prabha, a principal and director, respectively, at PwC.
System mergers are often touted as a way to increase quality and reduce costs, but what the authors found is that the deals are most often done to gain market share and wield bargaining power with health plans.
"When you look at the reason for the merger, it's less about reducing cost and more of a land grab for market share," Kaul said, "to get more negotiating leverage with the insurance company. … Some acquisitions are not about reducing costs, they're more about filling the portfolio."
For the study, the authors analyzed 5,600 individual facilities and 525 health systems using data from Centers for Medicare and Medicaid Services. They didn't give information on specific systems, but focused on the statistics, they said.
They found that for individual facilities, larger hospitals do have a lower cost per encounter than smaller hospitals.
However, for health systems with multiple facilities, the report found no relationship between size and cost.
"Bigger companies are not yet able to convert their size into operating efficiencies," the authors said in the report.
Instead of having an integrated organization, the merged health systems are often still run as individual hospitals, they said.
This view starts with the top executives, according to Kaul.
"A CEO of a hospital owns his or her own kingdom," Kaul said. "They think of other hospitals as competitors, even if they're part of the same system."
Prabha said two hospitals within a 10-mile radius of each other are often serving the same population, splitting the number of surgeries rather than pooling their resources.
Also, when health systems look at saving money, they generally start with administration and the supply chain, they said. A centralized human resources, finance and IT department are obvious choices, Kaul said. There's also savings in having an integrated revenue cycle.
Yet the real savings could come from the clinical side, as that's where the majority of money is spent, Prabha said.
An estimated 70 to 75 percent of the spend is on the clinical part of it, she said.
To start, the authors suggest hospitals define those services which should remain local to the individual facility.
Secondly, while top executives must be on board, change must have physician leadership, they said.
Clinical processes need to be standardized across hospitals. For instance, Prabha said they found variation in patient pre-procedure education. Some doctors insisted on it while others did not.
"What we found was physicians that did more pre-procedure work got shorter stays in the hospital (after the procedure)," Prabha said.
Service line management should be centralized for some specialities such as cardiology, they suggested.
From one facility to the next in a single health system, patients should have a similar experience, the authors said.
Kaul and Prabha are thought leaders in a global strategy consulting team at PwC. They and author Suman Katragadda, a PwC director, published "Size should matter: Five ways to help healthcare systems realize the benefits of scale."