COVER STORY
February 2025
COVER STORY
April 2025
Nurse Leaders Are Losing the Narrative. Here’s How to Take It Back.
COVER STORY
February 2025
Large hospital consolidations have always had consequences for the public, but they've started to overburden acquiring health systems as well, making scale no longer the foolproof answer.
COVER STORY
April 2025
Bigger Isn’t Better: Why Hospital Mega-Mergers Aren’t Working Anymore
Large hospital consolidations have always had consequences for the public, but they’ve started to overburden acquiring health systems as well, making scale no longer the foolproof answer.
COVER STORY
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Physician Comp is Skyrocketing. Are Doctors Worth Their Price Tag?
In a landscape shaped by hashtags, algorithms, and viral posts, nurse leaders must decide: Will they let the narrative spiral, or can they adapt and take the reins?
TAKEAWAYS
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Healthcare CFOs must step up as strategic leaders to bridge the growing financial and operational divide between payers and providers.
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Health systems spend billions annually battling payers—CFOs have the power to turn financial losses into policy-driven reform.
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To drive real change, CFOs must move beyond financial strategy and into policymaking to advocate for fair reimbursement and operational sustainability.
TAKEAWAYS
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Some of the biggest health systems in the country are showing vulnerability, highlighting the challenges that come with scooping up as much market share as possible.
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An increase in size can negatively impact areas like quality and the workforce, putting further financial pressure on health systems.
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Innovative partnerships and joint ventures, along with market realignment, offer opportunities for growth and optimization without the risks of excessive consolidation.
There’s a shift happening within healthcare consolidation. Becoming the biggest health system on the block is no longer the slam dunk strategy for long-term sustainability that it may have once been.
Now, achieving growth is better served through thoughtful, strategic partnerships, rather than chasing sheer size and scale.
In a post-COVID world, the reality for providers is that the margins, both for error and for the bottom line, are slim. Expenses are outpacing revenue gains in many areas, making efficiency the name of the game. The ‘too big to fail’ mindset for hospitals is of a bygone era.
A look at the balance sheets of some of the largest health systems in the country illustrates how size doesn’t necessarily translate to success.
Providence, for example, has been financially floundering for some time now as it reckons with rising labor costs. The Renton, Washington-based nonprofit, comprised of 51 hospitals across seven states, has logged operating losses of $1.7 billion in 2022, $1.2 billion in 2023, and $644 million in 2024.
Community Health Systems, meanwhile, followed up a loss of $133 million in 2023 with a $516 million loss in the most recent fiscal year. The Franklin, Tennessee-based organization currently operates 72 hospitals across 14 states, but has been shedding assets in its portfolio for years in pursuit of profitability.
These are just two cases in a growing trend of bloated systems struggling to find their footing, but they're indicative of why the tide is turning, if it hasn't already, against mega-mergers.
Bird’s-eye view
From the perspective of leading a health system, the most restrictive aspect about a giant organization is handling all the moving parts of a big, slow machine, says UMass Memorial Health (UMH) President and CEO Eric Dickson.
“The challenge that I hear from people that work in the super-systems is that it’s just so hard to get any change,” Dickson says. “You’re trying to standardize across 100, 200 hospitals. It’s really hard.”
Dickson doesn’t have to contend with that problem at UMH, which operates five hospitals, including a children’s medical center, behavioral health services, and a provider group.
“We have a state-of-the-art corporate services platform, but I can still get around at every hospital in the system and talk to people,” he says. “I meet with every manager, 900 people a year, in small groups to talk about where we’re going and what we’re trying to do.”
77%
Of the studies examined that measured quality of care after mergers, 77% demonstrated no change or lower quality after integration.
“The super-systems don’t have any advantage over the $6 billion systems in terms of scale. I buy my supplies for the same price as them, I buy my Epic for the same price as them, but I can know my system better because it’s small enough for me to get around the whole thing.”
Having a personal touch may seem like a quaint feature for a health system, but the truth is that the bigger an organization is, the wider the cracks are for issues to fall through.
Though health systems may continue to argue otherwise, evidence shows that consolidation leads to higher prices. That impact on patients and the communities that integrated systems serve is undoubtedly damaging, potentially leading to severe consequences down the road.
Eric Dickson
President and CEO, UMass Memorial Health (UMH)
What’s more troubling for consolidated organizations is the effect mergers may have on quality. While the evidence on that is less clear than on costs, there are reports that suggest integration can harm quality.
Recent research in the Journal of the American College of Surgeons, which reviewed 37 studies published from 2000 to 2024 that met the criteria of including horizontal or vertical consolidation and reporting on at least one measure of value (price, cost/spending, and quality), highlights this.
Of the 26 studies that measured quality of care, 20 (77%) demonstrated no change or lower quality after integration, with only six studies showing improved quality, driven by better care management processes instead of outcomes. Quality referred both to patient outcomes, like the number of 30-day readmissions or deaths, and to care management processes, including staffing levels and use of nurse care managers.
When quality drops, health systems open themselves up to worse outcomes for patients and a sicker community, which could eventually result in longer lengths of stay and fewer discharges, as well as other factors that result in lost revenue.
A decline in quality is also associated with private equity ownership of health systems. Private equity acquisitions of hospitals have shot up over time—though they’ve slowed down since hitting a peak in 2021—and in some instances the problems have been loud and egregious.
Steward Health Care is a prime example: the troubled organization has gone from the largest private health system in the U.S., with 37 hospitals across 10 states at one point, to bankruptcy. Now, its private equity owner and hospital landlord is siphoning off capital.
“The super-systems don’t have any advantage over the $6 billion systems in terms of scale. I buy my supplies for the same price as them, I buy my Epic for the same price as them, but I know my system better because it’s small enough for me to get around the whole thing.”
—Eric Dickson, CEO of UMass Memorial Health
Whether it’s a for-profit or nonprofit entity, fruitful consolidation relies on the acquiring heath system being a well-run organization, according to Jeff Patton, CEO of OneOncology, a cancer-specific management services organization.
“When they’re disciplined and they’re good operators to begin with, then [integration] makes a lot of sense,” Patton says. “Some of these nonprofit health systems, because they have such advantages in the marketplace, they don’t pay taxes, they have 340B pricing, and so their margins are so big that they're not really efficient operators, because they don’t have to be. Getting bigger in those cases doesn’t always make sense.”
“Then hubris gets in there,” he adds. “It happens to us and others where you want everything, and you do two or three more hospital deals than you should. It’s human nature. I’m not sure that’s unique in healthcare. What is unique to healthcare is that it’s not a free market. Some of these bad mergers stay afloat for a long, long, long time, because there’s no real way to disintermediate them with competition.”
The average number of hospitals per health system increased for the larger health systems (Federal hospitals excluded)
SOURCE: Deloitte Insights
Exacerbated labor challenges
Far and away, the number one pain point that continues to weigh provider organizations down is the workforce. When health systems grow, staffing shortages, retention, and burnout become exponentially bigger headaches.
The level of complexity, integration of systems, cultural differences, workload, and labor expenses are all heightened for consolidated systems. Managing thousands and thousands of clinical and non-clinical employees isn’t easy and can leave organizations susceptible to major concerns like worker strikes. Providence went through this recently with nearly 5,000 Oregon healthcare workers striking for 46 days before reaching an agreement to ratify their contracts.
Jeff Patton
CEO, OneOncology
“[When it comes to M&As] hubris gets in there. It happens to us and others where you want everything, and you do two or three more hospital deals than you should. It’s human nature.”
—Jeff Patton, CEO of OneOncology
Compensation, or lack thereof in the eyes of staff, is often the number one culprit in employee unrest, and that's something that can worsen with consolidation. A report in the American Economic Review that analyzed mergers that occurred between 2000 and 2010 revealed that wages for nurses and pharmacy workers were 6.8% lower, while wages for skilled workers fell by 4%.
In many cases, Patton says, workplace autonomy is just as desirable as adequate compensation, especially for physicians. Doctors may choose where to practice based on their level of involvement and say in decisions over providing care. That input could be stripped away when a health system comes in and acquires their organization, leaving them without the means to pursue their mission.
“Your ability to influence those changes is minimal to none in general, so that’s frustrating for physicians,” Patton says. “It can feel pretty arbitrary to physicians, and they don’t feel like they have a good voice, so other than leaving, there’s no real governance forum for them to make change. I can understand how they would feel kind of helpless. That’s a big part of burnout on the clinician side, is just not being able to control your own destiny when you are employed by a health system or some other entity.”
“Many hospital executives don't understand that happy nurses and happy doctors make for happy bottom lines,” he adds.
How CEOs are adjusting
The answer to ineffective mega-mergers is to simply do them better. However, the scale of these integrations, as outlined, makes that task incredibly difficult.
Instead, organizations are recognizing that size isn’t everything, and they’re finding different ways to achieve growth and optimization.
One of the M&A strategies that has come to forefront is market realignment. Kaufman Hall's report on 2024 hospital merger trends found that a record 62.5% of transactions last year featured market reorganization, with health systems divesting from non-core markets to strengthen their hold on core markets.
“We’re shedding Christmas ornaments,” says Paul Keckley, a healthcare policy analyst and managing editor of The Keckley Report. “We’re finding out that a lot of the things that we thought you had to do, maybe you don’t have to do it at the level you thought.”
62.5%
The amount of transactions last year that featured market reorganization with health systems divesting from non-core markets to strengthen their hold on core markets.
Source: Kaufman Hall
“What you’re seeing is people have to step back and skinny down to basic core operations, partner for some of the innovative stuff through these joint ventures and private equity deals, but it’s not very sexy,” he adds. “It’s blocking and tackling.”
Consolidating down to core markets is also likely to be easier now under the current presidential administration, which has indicated that it has less of an appetite for regulatory scrutiny in dealmaking. Though the FTC has stepped up enforcement in recent years, hospitals could be operating in a scaled-back environment for the foreseeable future.
Paul Keckley
Healthcare policy analyst and managing editor of The Keckley Report
“One of the things that really saved UMass Memorial the last decade is the joint ventures where we created new businesses that were in spaces that an academic health science system was not going to do particularly well—urgent care, ambulatory surgery center, standalone psychiatric hospital, Medicare Advantage plan—where I could find a best-in-class partner that knew the business really well, better than us, they could run it, but I could fill it up because I had the customers,” Dickson says.
“You don’t need to do it all yourself,” he adds,
Ultimately, the question providers will have to answer to attain sustainability is: What’s the sweet spot for the size of a health system?
In terms of annual revenue, the argument can be made that the benchmark is around $5 billion right now, but with the way the industry is heading, that may be closer to the floor than the ceiling.
“Thinking longer term, I look at where the seven big insurance companies sit and all of their market caps dwarf HCA,” Keckley says. “So we are, relatively speaking, in the hospital world still pretty fragmented, pretty modest scale, relative to the structure of other industries both inside and outside healthcare. We’re going to see the FTC and the DOJ weigh in and I think we’ll see some jumbo deals. We’ll be looking back in two to four years at a floor that’s closer to 20 billion instead of five.”
Whatever the ideal size is, health systems should be as motivated as ever to reach it rather than being enamored by scale because, as Dickson says, “the mega-mergers won’t work out over time.”
Jay Asser, CEO Editor, HealthLeaders