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Providence Health Prices Deal for California Acquisition

JUL 17, 2014 1:04pm ET

Providence Health & Services priced a deal to finance acquisition of a California hospital, an example of the consolidation trend in healthcare as hospitals grapple with financial pressures wrought by the federal healthcare law

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Comments (1)
Realization of efficiencies influenced by economies-of-scale have generally been viewed as a positive and the impetus for M&A activities in the corporate world. Why should the health care sector be exempt from becoming more efficient? While there will be bumps and bruises along the way, they are the realities of changes required to attain longer-term benefits. For example the mega-retailers provide consumers with quality products at prices a local or mom and pop retailer cannot match. While not relishing this fact, it's a harsh reality and has influenced consumer behavior. The health care sector has not been influenced by direct consumer participation because of how hospitals were able to charge costs that were not reflective of a competitive marketplace and the direct payers (health care insurance companies) were usually not the end users. Employers will still represent a significant source to provide health care insurance, but the choices are greater today than before. And, those who are not covered by employee-sponsored programs can purchase health insurance directly, or seek to qualify for governmental programs. Consumers being able to choose an insurance provider based on costs and coverage levels gives them a far closer role to the health care providers than ever before. The health care insurer has to consider market influences when presenting the level and quality of their service coverage. Efficiencies come into play for the insurers and because they are the direct payers, they will require the same the hospitals. Economy-of-scale principles become particularly important and less efficient health care providers will feel the pressure. Consolidations through acquisition to realize efficiencies become the tool of survival.
Posted by Michael.ross1904@yahoo.com | Friday, July 18 2014 at 8:25AM ET
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