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Will Health Plans Continue to Buy Up Hospitals?

I doubt it.

IMHO, the recent acquisition by Highmark Blue Cross Blue Shield of West Penn Allegheny Health System (WPAHS) for $475 M is unique to local market conditions. It was done as a last resort and should not be taken as a signal that health plans are starting a hospital buying binge.

Why are hospitals unattractive investments for health plans:

1) Hospital financial valuation is largely based on illiquid hard assets — bricks and mortar, depreciating technology, real estate that has declined with the general economy.

2) Hospitals are expensive. Health plans will have better uses for capital.

3) Physicians control most patient care costs, not hospitals. The doctor’s pen (or iPad) controls hospital admissions, medications, procedures, and surgeries. As we explain in our series on the 100 Year Shift, physician partnerships are becoming much more attractive for health plans.

4) Physicians mostly direct patient choice of a hospital, not hospitals. Patients still trust their doctors, and few will disregard a doctor’s direction to a specific facility.

5) Hospitals are a major target for cost cutting.

Will there be exceptions? Yes.

1) To prevent market consolidation by hospitals or by hospitals & doctors. This was the case in Pennsylvania.  Highmark was between a rock and a hard place in Pittsburgh:

  • If they did nothing, WPAHS would go bankrupt and UPMC would be the only health system left in town. UPMC would have almost no competition for prices.
  • Acquiring WPAHS is a risky, capital intensive acquisition.  Highmark’s acquisition could impact patient steerage by other local physicians and health plans. But they did it anyway, and I believe it was the right call.

2) As a mechanism to get to the doctors. In many communities physician/hospital integration has been advancing for years and health plans do not have options to negotiate directly with physicians without the hospital.

Bottom line: Highmark’s acquisition of WPAHS is a signal that health plans want to integrate more directly into patient care… especially primary care, not that they want to own hospitals.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 Unported License. Feel free to republish this post with attribution.

6 Comments

  1. Emily Berry on July 18, 2011 at 1:22 pm

    RT @VinceKuraitis: Will Health Plans Continue to Buy Up Hospitals? http://bit.ly/nf7TfT #HCR #hospital #ACO #PCMH



  2. Aparna M K on July 18, 2011 at 6:04 pm

    Will Health Plans Continue to Buy Up Hospitals? | e-CareManagement Blog http://dlvr.it/bgp3h



  3. Benjamin P. Geisler on July 19, 2011 at 1:34 am

    RT @MedBizNotes: RT @VinceKuraitis: Will Health Plans Continue to Buy Up Hospitals? http://bit.ly/nf7TfT #HCR… http://tinyurl.com/3fuwurg



  4. Lynn Kosegi on July 19, 2011 at 4:00 am

    Will Health Plans Continue to Buy Up Hospitals? | e-CareManagement http://t.co/IPpHqsm From @VinceKuraitis on Highmark – West Penn Allegheny



  5. Vince Kuraitis on July 19, 2011 at 8:02 am

    Is Highmark acquisition of West Penn a sign that health plans want to buy hospitals? NO! http://bit.ly/nf7TfT #ACO #AHA #payer



  6. Tracy McManamon on August 2, 2011 at 6:52 pm

    This debate about this acquisition has been ongoing for a long time. This had to happen in this market due to competition and steerage. I expect to see more in these larger cities with dueling hospital systems.

    TBM