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Hospital Mergers, Alliances Hit Kansas City Region


In recent months, local officials have been exploring the sale of North Kansas City Hospital, HCA Midwest announced plans to acquire St. Joseph and St. Mary’s hospitals.

And just last week, St. Luke’s said it’s joining an alliance of sorts with three other non-profit health systems in the Midwest.

But Arif Ahmed, professor of health administration at UMKC’s Bloch School of Management, is not at all shocked by the recent developments. In fact, Ahmed recently told KCUR's Elana Gordon that market forces and public policies especially, like the federal health law, mean even more changes are likely on the way.

Below are highlights from the interview:

Responding to increasing accountability, hospitals try to increase capacity.

AHMED: It [recent developments] are not surprising. The general direction is to essentially put more accountability on providers. And with some of the newer policies, and the way the policy environment is moving, the accountability is extending beyond the providers’ doors.

GORDON: So you’re talking about things like this month, for example, hospitals may face a penalty for patient readmissions from the hospital within a certain period of time?

AHMED: Exactly. So readmissions are costly, so the payers are looking into reducing the occurrence of readmissions. And one of the easier ways from the policy implementation perspective, or using a policy to achieve that outcome, is to hold somebody accountable. And the logical party in this equation is the providers.

GORDON: So how does that relate to something like HCA Midwest looking to merge and to buy other hospitals?

AHMED: What you are seeing is that once you are entrusted with that accountability and you are held accountable for something like readmission rates, you have to increase your capacity. So you also have to ensure that the patient continues to follow up, that the patient is taking the medications, coming back for follow up checkups and so forth. So you need capacity, and one of the things that a larger size allows you to do is do some of these things more efficiently. So you have in several different institutions, for example, if you need to involve more social workers or community health workers to engage with the patients at their homes or their neighborhoods, then economies of scale comes in and a larger size allows you to do that.

New policies pose challenges for small hospitals

GORDON: So smaller hospitals now may be facing greater challenges moving forward?

AHMED: It is difficult, yeah. So for smaller hospitals, if you are going to play by the same rules as the larger institutions, then you’ll have to have similar capacities. And one of the ways of gaining that capacity is either get into some kind of alliance with others or the other option is to essentially become part of a larger entity.

GORDON: Shouldn’t hospitals be able to address these things [penalties] anyway, whether they be large or small, and be able to provide the type of care and follow up anyway?

AHMED: I think one of the things that’s happening is that the definition of quality is also expanding. So it’s not just the quality of clinical care that you provide in the institution. Quality is being defined both in terms of the quality of clinic care that is delivered in the institution but also in terms of longer term outcomes. So I think that’s where the need for greater capacity is being felt.

Not the first wave of hospital mergers, though past circumstances differed

GORDON: How do these recent developments compare to how hospitals and health systems have worked in the past?

AHMED: There was another wave of mergers and acquisitions during the late 90s and early 2000’s. Many of the large systems that we know today resulted in becoming large systems in that era. It was essentially the provider side’s response to the market power of the payers. That was the height of the managed care era.


AHMED: Like HMO’s, or other third party payers using managed care as a principle way of reimbursement [paying providers an amount to manage the care of a patient vs. paying providers for services]. So the reason HMO’s gave way to more softer managed care, in the form of PPO’s which is the predominant model, is that providers felt the pressure to take on the financial risks of providing care. The HMO model essentially shifts the entire risk to the providers. It [merging] was essentially a pushback.

This time around I think the mergers and acquisitions are taking place as a result of public policy change as opposed to a market power battle, if you will. So I see it moving in that direction, partly because it’s not just individual entities or hospital systems coming together and deciding we need to grow and have larger capacity and so on. Independent entities like the Institute of Medicine, several other think tanks, when they talk about better quality, lower cost health care delivery, all of them talk or site examples which are essentially large institutions. So they site the Cleveland Clinic as a model or perhaps the Geisinger Health System or perhaps the Scott & White system [when discussing the] desirable qualities that are the cornerstones of the suggestions.

For example, the Institute of Medicine has been promoting in recent years the idea of the learning health care system. So you learn and improve every time you provide patient care. Every episode of care is a learning opportunity and you collect that information, and you share it with others and that’s how you improve the quality of care. Some of those require capacity in terms of infrastructure, in terms of electronic medical records, very well connected providers in terms of connectivity between different types of providers. So from a philosophical perspective if you will, the health care system is moving in that direction as well. So this wave may not be as short lived as it was before.    

GORDON: [Stepping back,] how does this history of hospitals relate to Kansas City’s experience?

AHMED: Takeovers and mergers are not new to the Kansas City market. In the era of integrations and mergers in the ‘90s, the Health Midwest, they did purchase some hospitals and merge with hospitals and they became quite large to establish significant market power in the Kansas City market.  What we are seeing being played out now with HCA buying St. Joseph hospital and St. Mary’s hospital, that is also essentially from their perspective I would suspect is to gain larger market share.  Of course from the smaller hospitals perspective, it was something inevitable that they had to be something larger.

You have the St. Luke’s system, which is also the dominant system in the market, and potentially they may be looking into acquiring some institutions in the areas that they don’t have presence. Many say that with the way the reimbursement structure is shifting towards accountability, you’d also want your presence in areas where you don’t perhaps have as much of a cost to provide care because the patient population is healthier. Many refer to this as the battle of zip codes. So in different zip codes, you’d have a different demographic mix and consequently a different type of morbidity mix and that would result in the providers’ financial wellbeing.

GORDON: In the same way that you’ve seen hospitals move further out into suburbs and more affluent neighborhoods, is that what you’re talking about?

AHMED: Yep. So I guess the Kansas City market is not unique in that regard.

Merger concerns, but implications remain to be seen

GORDON: What kind of questions do you have and what are the kinds of things you’re looking at and wondering about in terms of what this [mergers, changes] will mean?

AHMED: One of the things that is not just me, but many individuals who work in institutions that cater to specific needs or specific population groups, some of them are worried that they may not be able to continue with that mission. It is still to be seen what kind of impact either this would have, but also there are other larger issues. Including if the health care law gets fully implemented, there would be additional several million people with health care coverage. So, for example, from community health centers’ perspective, would those people need their services anymore, and consequently would they lose the federal funding that they get?  But the flip side is that many health centers are also looking into being one of the competitors in the market place and competing for the newly insured individuals.

GORDON: You talk about the logic behind it, do you have reservations? What does it meant to shift away from these smaller entities to now combining?

AHMED: Well one of the things that is a fair criticism of our health care system is the variation. Variation in quality, variation in access and so on. So I think this move probably will reduce the variability probably in terms of quality of care. But on the other hand you are talking about larger entities in many instances, they may not have a very good understanding of the local flavor if you will, local needs and so forth. And that may be something that can be seen as a negative by many. But in general, if we were to deliver higher quality care at a lower cost, some of the basic necessities in terms of electronic records, connectivity, the idea of patient centered medical home, some of those ideas, will actually help us quite a bit both in terms of containing the growth rate of health care expense, as well as getting better patient outcomes.

GORDON: Is that something that has to happen in larger health systems, or can smaller hospitals - those rural hospitals, smaller practices, too - are they being set up now to fail? Or is there a way for them to continue differently?

AHMED: I guess there would be changes for many entities and perhaps rather quick changes for many entities. But when it comes to smaller institutions, solo practice physicians and so forth, I don’t know whether you’d see solo practice physicians practicing absolutely independently. I mean, they may still be able to have their own individual practice but they’ll have to have some kind of engagement with the larger structure that takes care of some of these unique features that the large entities have.  So they have to be able to connect with other providers, other providers will have to be able to gain access to the patient records when they are needed, they have to be able to look at longer term outcomes of their patients.  Probably we’ll see more things spelled out and as we get into that stage, probably see solutions that will help those entities to stay afloat, there would be solutions that would come out. But right now it seems that being part of a largest entity is the wave that we’re seeing as the strongest wave.     

Beyond elections, policy consensus growing

GORDON: How do you see what happens with the elections, the unknowns, and the fate of the federal health law affecting what we’re starting to see right now?

AHMED: Well my guess is as good as anybody’s at this point, but I think some of the underlying trends probably have bipartisan support. When you think in terms of not necessarily the lawmakers or the politicians who are arguing these points in public, but sort of the basic premise that are at the core of those arguments - and some of those may have come from academic studies, some of them may have come from either left leaning or right leaning think tanks - there is quite a bit of agreement in terms of what we need to do in order to address cost issues, how we can improve the efficiency of the health care system…

I think if you want to boil it down to one single point, there is consensus there that we are not getting under our current structure of health care delivery the best value that we can get for the expense that we are incurring for health care. So, asking that question, and when you ask the question of the value of a provider, then the next follow up question of course is who is accountable for that value, how do you hold someone accountable for that value, does our current reimbursement structure allow the payers to hold the providers accountable? If you answer those questions objectively, then the argument is probably a fairly strong one that we will see a trend moving in the same direction as we are seeing now, or are just starting to see the beginning of.

GORDON: So as we’re seeing some of these examples of alliances now and a shift to an electronic record system, will this all be changing pretty quickly now?

AHMED: I’d rather not comment on the potential pace because one of the biggest questions is how quickly we will get electronic connectivity. And how well would, if for argument’s sake, let’s say we digitize all patient records in five years. Can we get them interconnected? Let’s say we spend another two years doing that. At the end of seven years, can we use the data that’s generated through that interconnectivity to look into quality, look into outcomes and make the best use of that knowledge? So I think it’ll be a gradual process because again, we don’t have a centrally controlled health care system so. The market itself will have to sort it out in terms of realizing what’s valuable to the players and then see whether they can translate that to the value of the care that they deliver.


This story is part of a reporting partnership that includes KCUR , NPR and Kaiser Health News.

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