M&A and the Cost of Quality
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Anthony L. Spezia
President and CEO
Covenant Health, Knoxville, TN
On reducing costs: There has been a fair amount of research done that indicates that larger health systems, whether for-profit or nonprofit, have better margins and better metrics. That is driven by two things: One, scale does matter in terms of overhead, but there is also an impact associated with the degree of integration you are able to achieve. Both of those have been demonstrated to improve financial performance.
On improving quality: You can say yes on cost. That is fairly well documented. On the issue of quality, there is not as much data. But the larger health systems can invest more in physician leadership and information technology, which has demonstrated that it can improve care delivery at the bedside. So it would be logical to think there would be improvement in quality outcomes as the result of the ability to make investments that are important.
On the M&A trend: It’s going to go a lot farther. Twenty percent of the acute care hospitals in the country are owned by cities and counties; that’s nearly 1,000 hospitals. That particular group of hospitals is going to be very ripe for acquisitions. As cities and counties and municipalities deal with budgetary challenges, clearly that will have an impact. Second, hospital margins are going to be under tremendous pressure, and declining. When it reaches the point where you see a decline in financial performance and the need for the city or county to step in and be more involved in financing their hospital or otherwise being financially involved with it, at that point, when you couple it with the budgetary challenges they have, we are going to see a large number of city and county hospitals begin to look at selling.
This article appears in the November 2011 issue of HealthLeaders magazine.
John Commins is a senior editor with HealthLeaders Media.
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