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M&A and the Cost of Quality

John Commins, for HealthLeaders Media, November 13, 2011
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This article appears in the November 2011 issue of HealthLeaders magazine.

Sean Fadale 

Vice President of Operations
Noyes Memorial Hospital, Dansville, NY

As we talk about economies of scale, being connected to larger entities increases your negotiating power. Supplies and your reimbursement for payer contracts can be much more favorable to a larger organization and a larger system than they can for the independent hospitals that are out there on their own.

Regardless of where healthcare reform is going to take us, it is going to be based on quality. So everybody is going to be raising the bar to meet the metrics. Larger systems can have greater commitment to these efforts because they’ll have the resources to do so.

The quality/cost piece is an important part of it. You are doing more with less each year. How do you get patients in the door? How do you install the EMRs and other initiatives that are going to drive reimbursement as an independent organization?   

When you’re in these merger and acquisition conversations, for the smaller hospitals the challenge is, how do you keep that local flavor? The only way that is possible is to enter into these conversations when you are healthy. If you get to the point where your bottom line is shot and you have a hard time recruiting and retaining medical staff, the likelihood of your maintaining some level of identity is going to be pretty slim.

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1 comments on "M&A and the Cost of Quality"


Dean Oschwald (11/29/2011 at 11:46 AM)
I would agree that there is power in size when negotiating reimburesment from Incurance companies. However, I have found that being independant from purchasing groups can save a great deal of money on equipment and supply purchases. The other point I would make is that while the Government has listened to the lobby for saving on healthcare cost by eliminating the independant surgery centers, Cath Labs, Sleep centers and moving them into the Hospitals, this will not reduce cost. It will have the opposite effect. I managed a Cardiology group who had their own Diagnostic Cath lab. We were around 10% of the cost of the closest hospital, we had newer equipment and the same Cardiologist doing the same procedures in the hospital. Our reimbursements were much lower that the exact same service at the hospital with the same providers. The Hospital bought out the Cardiology group, and cost increased to the patients and all the insurance companies as well as the government Medicare and Medicaid programs. In a like for like comparison, the cost are higher with the hospital providing the service. I watched every penny and contained costs. Our outcomes were better, only because we had dedicated staff that was highly trained to do nothing else but take care of these patients. We did constant in-service training, and tracked everyhing. We were AAAHC certified, but we were still locked out of some insurance company participation because of the Hospital Lobby efforts. Consolidation will not reduce costs or improve outcomes. Tactical apporaches to conducting business including price negotiation for supplies, equipment and services will reduce costs and specialization of staff training and care to the serivce line will improve outcomes. This can happen with or without consolidation and merger.