The healthcare industry is witnessing a move toward consolidation as hospitals, clinics, and medical practices merge to create larger, integrated health systems. Ultimately, the goal of combining these systems is to improve operations and create positive patient outcomes.

Consolidation can lead to more efficient operations and help struggling providers remain viable, especially in underserved areas. By combining resources, healthcare entities can improve services and ultimately reduce redundancies in operations. There are three consolidations to keep in mind: horizontal, vertical, and cross-market mergers.

 

• Horizontal Mergers: Consolidation be-tween operators that offer the same, or similar, services. This can include two physician practices that provide the same service merging.
• Vertical Mergers: Consolidation between operators that offer different services, but still belong to the same supply chain. For example, a hospital or health provider ac-quiring a physician practice.
• Cross-Market Mergers: Consolidation between two providers that operate in different regions for patient care. This can include mergers with practices around the country.

Real Estate Implications

Mergers and acquisitions require strategic real estate planning to accommodate expanded services and optimize facility usage. Integrated health systems often need scalable, flexible, and strategically located facilities to effectively serve their patients.

When accounting for scalability, operators need facilities that will provide them with space to grow. This includes keeping the future layout in mind in regards to physical space and future services. Providers need to remember that they will require flexible spaces as their needs change. Spaces that can easily be reformatted to allow for different types of care will enable providers to ensure they are meeting their patients’ needs.

 

Portfolio Rationalization and Facility Consolidation

After merging, overlapping or underperforming facilities are evaluated for closure, repositioning, or sale. In doing so, this effort can decrease operational costs and help the newly-formed system reinvest in high-performing properties.

One example is the merger between Advocate Health and Atrium Health. Both systems reviewed locations and where they had overlapping outpatient care to identify opportunities for consolidation and operational enhancements.

 

Demand for Scalable, Multi-Use Facilities

Consolidated systems largely focus on prioritizing facilities that provide support for multiple specialties, offer outpatient services, and can be adapted for multi-use as their needs evolve. Multi-use buildings reduce the need for isolated locations and ultimately provide more support for care delivery.

Trinity Health is one provider that sought to invest in health campuses that are adaptable to change, depending on services. Its investment prioritized properties that are able to change between urgent care, specialty clinics, and imaging services as part of its system-wide consolidation.

 

Strategic Location Planning for Market Coverage

Larger health operators use data and demographic analysis to ensure they are placing their systems in the correct markets for growth, referral optimization, and patient convenience. By ensuring proximity to retail corridors and public transit, health operators can improve access for patients and also allow for more patient growth, due to the convenient locations.

 

Beth Israel and Lahey Health prioritized their location upon their merger in Massachusetts. Their newly-formed system, Beth Israel Lahey Health, used market analysis to redistribute services across its newly-expanded footprint, ensuring key outpatient facilities were placed in suburban growth zones.

 

Private Equity Involvement

The addition of private equity into healthcare aided consolidation, but also raised concerns about the impact on care quality and pricing. These kinds of acquisitions can improve patient care, as well as staff satisfaction.

 

Looking Ahead

The future of healthcare consolidation is a multifaceted trend, driven by a variety of factors. Private equity firms and healthcare systems are increasingly acquiring physician practices, a trend that is accelerating and has already resulted in a significant shift away from independent physician ownership.

 

This consolidation is motivated by financial incentives, such as the opportunity to gain greater market power, negotiate higher prices with insurers, and achieve economies of scale. As a result, the healthcare landscape is likely to continue evolving with a balance between the pursuit of scale and the regulatory push for greater transparency, affordability, and competition.