Permanente Medical Group CEO: Hospital mega-mergers are 'deals of desperation'

Recently announced health system mergers like the Dignity Health-Catholic Health Initiatives and Ascension-Providence St. Joseph combinations aren’t about long-term growth, argues Permanente Medical Group CEO Robert Pearl, MD, but are rather signs of panic from systems which are banking on increased clout and higher prices to counteract financial struggles and waning influence.

As part of his “Saving America’s Hospitals” series for Forbes, Pearl repeats existing evidence that hospital consolidation has led to higher prices, rather than the often-stated goals of improving quality and lowering costs. It won’t work, he argues, because major healthcare purchasers are “growing inpatient” with exorbitant hospital rates and shifting patient care to less costly settings.

The easy solution for hospital CEOs, he writes, is the one they’re taking: expand services and raise prices. In the long run, however, he feels the answer is going to be consolidating volume in fewer facilities and demand higher efficiency from physicians—what he calls “self-disruption”—or else change will be led by outside forces like insurance companies.

“Few organizations in any industry find consolidation and downsizing attractive. But the alternative, being disrupted by others, will prove far more painful for hospitals,” Pearl writes. “Unless CEOs are willing to embrace strategies that focus on operational efficiency, their bottom lines will continue to erode as patients pursue more convenient and lower priced care elsewhere.”

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