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Resisting the Healthcare Consolidation Frenzy

Philip Betbeze, for HealthLeaders Media, December 11, 2013

"Logistics are logistics, so they may provide us better terms and conditions and price points than traditional vendors," Luckett says. "They win, we win. They defray operating and overhead costs, and we remain independent."

CaroMont has already developed an RFP to establish such a relationship with either an IDN or a vendor.

Despite the strategy of staying independent, which the system is committed to executing, "we never want to get into spot where we run out of options. That's a failure of leadership and management." Luckett says when asked about the remote possibility of an eventual merger.

He concedes that independence may not necessarily continue to be the top priority, however, if the system faces unanticipated pressure from payers or attempts to exclude it from important networks.

"Increased payer pressures or exclusions will change our strategic direction," Luckett says. If that happens, he cautions, the payers will hand over the "master key" to the largest providers because such dominant organizations will control rates at that point.

"Seventeen out of 110 hospitals in our state are independent. Between the metro area to my east and the large system to my west, we're it, as far as size, scope, and tertiary care is concerned," he says. "Once that corridor gets closed, providers will command a higher rate and insurers' leverage will be gone, which is why I don't understand why this grouping is being rewarded. We're not closed-minded about any of it. The FTC is at severe odds with HHS and the White House on consolidation, but the truth is rates are going through the roof."

The growth path and early warning

Methodist Health System President and CEO Stephen L. Mansfield, his board, and leadership team are committed to keeping the Dallas-based organization independent through aggressive growth. Though it has seven hospitals throughout the Dallas-Fort Worth metroplex, just a half decade ago it boasted only two and has gone from around $400 million in revenue five years ago to $1.1 billion in its most recent fiscal year. Still, in Texas, where everything is bigger, Methodist has much bigger systems—Baylor Scott & White Health ($5.8 billion total net operating revenue) and Texas Health Resources ($3.7 billion total operating revenue)—in its own backyard.

"Independence is something we wrestle with a lot," says Mansfield. "We have an obligation to assess that. But we have a strong growth appetite going forward. We'll grow to 35% more than we are today."

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