Consolidation in Healthcare

In this blog, let’s continue over financial education of the healthcare system and talk about consolidation & healthcare, and its significant impact both on providers and patients.

Consolidation in Healthcare
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Publish Date
Jan 12, 2022
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Of Note; this is part of the course:
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Section: 2.0 - Financial Consideration
🔗 For enrollment and details, please visit:

Not Just Healthcare - Same Story Different Industry

Consolidation is nothing new. It has been going in different industries. There are 95% fewer department stores as compared to the 1960s. 75% of airlines have vanished as compared to the1960s and banking industries are practically half what they used to be in the1990s.
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Healthcare SYSTEM Landscape

Currently, the US has 80 large hospital care systems. There are 10 plus hospital systems as defined by large and then there are mid-tiers and academic centers, and then small community hospitals. There are still quite a few 1300 or so small community hospitals, but they are being acquired at a very significant increasing rate by mid-year and then becoming larger, larger hospital systems as we go along. And, why do we do that?
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Why Consolidate? It’s All About Revenue

It's about the business at the end of the day. Larger hospitals captured 82% more of the revenue as compared to smaller hospitals, which captured 45% of the revenue. So there's clearly a significant advantage for becoming big. There are some of these advantages coming from consolidation itself, in terms of economies of scale and some of it has to be different.
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Winner Takes All

Unfortunately, “Winner takes all”. As you can see larger and larger the hospital system is, they gather up smaller and smaller hospitals becoming from large to huge. That is the reality of life we live in. The winner takes all in terms of everything.
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Impact of Consolidation

There's a significant amount of loss of phenomena autonomy. As a physician, you do not have a direct impact on what your concerns are about the patients. There's such a level of hierarchy that by the time you get to the top it just does disappear. And in terms of individualization, patient care is lost because there's decreased competition. There's no other group in the area except for that particular big large hospital system and therefore patients’ choices are significantly decreased. Similarly, decreased access means increased bureaucracy and it's going to end up increasing the prices.
  • Loss of Autonomy
  • Decreased competition
  • Decreased Access
  • Increased Bureaucracy
  • Increased Prices

Phases of Consolidation

First, the hospital scales by making sure that it's at least three or four bigger. Then, it goes and invests in its capabilities and therefore makes sure that it has different service lines that are capable enough. And then, it improves the quality in terms of pricing, measurements etcetera and finally improves the efficiency and takes over other hospitals as we move along.
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Consolidation of Providers, Not Just systems

In terms of hospitals, providers are getting consolidated. If you look at the consolidation as far as hospital beds and hospitals, you can see primary care physicians and physician groups, in general, are being consolidated as well.
Provider consolidation is a big issue. As a matter of fact, Karyn Schwartz tweets about it:
Provider Consolidation Leads To Higher Health Care Prices For Private Insurance; This Is True For Both Horizontal And Vertical Consolidation - @KarynLSchwartz
If you have all the providers under one umbrella of the healthcare system, there is no other way for the patient to go. And more importantly, there's no other way that the insurance company can pay for that because they have to go through that hospital care system. So for private insurance is this is a big issue.
This is true for both horizontal and vertical. When you say horizontal, the system within becomes so consolidated that you have to obey the health care system when insurance payments are concerned. When you say vertical, in terms of within the market itself, you are bound by the rates set up within the insurance company which are consolidated from the very big market strategy-wise.
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Hospitals & Monopoly

In healthcare expenditure, one large overlooked factor is the increasing monopolization of health care markets.
Example 1:
Between 2007 and 2011, there were 366 U.S. hospital mergers and acquisitions. Healthcare prices increased by 6% when the merging hospitals were geographically close.
Example 2:
Between 1996 and 2012, in‐state hospital mergers yielded an increase in healthcare prices by 7-9%.
Even more consequential for the cost of healthcare is the increasing monopolization found among hospitals, which accounts for the majority of U.S. health care spending. When hospitals buy out their competitors, the effect is almost always higher prices. Also, hospital consolidation often leads to reduced access and quality of care.
The bottom line is this: As consolidation looks increasingly appealing to struggling executives, they must remember that not only is consolidation bad for business, consolidation is bad for consumers, too.

Impact of Covid-19 on Consolidation


Increased Cost: PPE, Overtime, ICU, Uninsured
Decreased Revenue: Elective surgeries, Procedure Volume, Ambulatory Care


Preparing for a Post-Pandemic Boom in Healthcare Consolidation
Based on McKinsey, they're estimating that independent physician practices are significantly amenable to getting bought up. Small practices can be bought up pretty easily.
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Junaid Kalia MD

Written by

Junaid Kalia MD

CEO | Founder | President NeuroCare.AI - Advancing Digital Health Ecosystem in Emerging Countries!

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