Let’s rummage through the digital archives for a moment and pull out a quote from a column of five years ago, in a different venue, on the subject of hospital system mergers:
Those trends are going to continue as long as there are partners to sign up and territory to stake out. Eventually, the big surviving networks are going to run out of both.
What happens then? Would the major players start eyeing one another as merger candidates? Would the local networks consider affiliating with health care conglomerates elsewhere in the Northwest or the U.S.?
Having lamented recently about inaccurate predictions, it’s nice to claim one that did work out, as validated by the recent announcement that Tacoma-based MultiCare Health System is buying Rockwood Health System in Spokane, which includes two hospitals.
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In truth, this wasn’t a hard one to call. That five-year-old column was written in the midst of a flurry of mergers, affiliations, consolidations and expansion plans within the region’s health care sector — a flurry that hasn’t abated since then.
Simple math and geography indicated where the trend line was headed. At some point the major systems would run out of independent hospitals and clinics to buy and local markets to annex or expand into with urgent-care facilities or new hospitals.
We haven’t reached that point — yet. But the day that there’s nothing around here left to buy and the market is fully saturated is visible from where we’re standing now, and we’re not standing, we’re running toward that destination.
Hospital and health care systems aren’t waiting around to figure out what’s next. The MultiCare-Rockwood deal is not the first interregional link-up. Group Health plans to merge with Kaiser Permanente, based in Oakland, California. Providence Health & Services in Renton joined with St. Joseph Health of Irvine, California. Tacoma-based CHI Franciscan Health already is part of a multistate network, Catholic Health Initiatives.
A quick internet scan suggests that health care consolidation is a national phenomenon, with independents (both single hospitals and small regional players) being gobbled up to make larger regional systems.
What’s driving the interregional combinations is the same factor that drove intraregional consolidation — “scale.” But the word has somewhat different meanings depending on the situation.
Health care is a locally produced and consumed service. If you live in Tacoma, you don’t particularly care whether the health care system you might do business with has hospitals in Spokane, or even all over the Puget Sound region. You care about having a family doctor nearby, and quick access to some emergency and specialty treatment facilities should you be so unfortunate as to require their services.
But the health care systems care a great deal that the family doc, urgent-care facility, specialty clinic and hospital are all tied together somehow. The more they can keep you and your family within the system, the more scale they can build, and perhaps capture some marketing and operating efficiencies along with it.
Why, then, would it matter to MultiCare to own hospitals in Spokane? Scale, again, but this time it’s to build size sufficient to wield some negotiating clout with health care insurers and government agencies in setting reimbursement rates. (Interestingly, while the hospital industry has been consolidating and building bigger networks, it has vociferously opposed the same thing in the insurance business, such as the Aetna-Cigna merger.)
If you extend the trend line, the inevitable conclusion would be that the health care industry will eventually look like the airlines, or fast food, or drugstores — a handful of national brands and some scattered small local players that manage to stay independent.
But it might not work out so neatly. The banking industry has not been able to build a true national brand, at least not on the consumer side. And for all the marketing health care systems are doing to build brand awareness, brands don’t mean much (outside, perhaps, the Mayo or Cleveland clinics) for the average consumer. You go to a doctor because your neighbors recommended him or her. You go to a specialty practice or hospital because your doctor recommended it.
Plus, who knows what the health care industry will look like after a new administration and Congress are done tinkering with it.
Still, it’s reasonable to predict that the consolidation trend is going to continue just because there are so many opportunities for deals. The MultiCare-Rockwood deal provides another incentive for local health care executives to pull out their highway atlases, run their fingers along the Interstate 5 corridor or through Central and Eastern Washington and decide, “It’s time to go on a road trip.”
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.