Is Hospital Consolidation Being Driven By HIT Issues?

Posted on April 27, 2011 I Written By

Katherine Rourke is a healthcare journalist who has written about the industry for 30 years. Her work has appeared in all of the leading healthcare industry publications, and she's served as editor in chief of several healthcare B2B sites.

As just about any reader would know, Community Health Systems is engaged in a $3 billion hostile bid to take over Tenet Healthcare Corp.  As I noted on another blog, this may or may not be a good idea, but hospital consolidation is clearly in the air.

Just look at the past year. Not only has CHS attempted to take over Tenet, Tenet moved to gobble up Australian hospital chain Healthscope, private equity firms have been  sinking big bucks into regional systems and local chains are merging with big ones.

All told, according to Irving Levin Associates, 77 hospital-related M&A deals took place during 2010, the highest number since 2001. We’re talking a monumental $12.6 billion in deals, according to Irving Levin research.

The question is, why last year as opposed to any other?  Commonly-cited factors include:

*  Attempts to batten down the hatches to prepare for health reform

*  Opportunistic buying by chains and venture firms, as hospitals continue to struggle with the aftermath of the 2008 market crash

* Hospital willingness to close or merge in the face of rapidly-changing times

What you don’t see mentioned often — in the mainstream business press at least — is the staggering cost of upgrading health IT infrastructure to the levels needed for enterprise-grade performance.

During the process of implementing an EMR, IT costs can shoot up 80 percent, according to Accenture, driving up hospital costs 200 basis points or more.

And that’s just the beginning.  Health IT leaders must address database management, workflow integration, upgrades to communication infrastructure and much, much more.

The bottom line is that if all of these systems don’t work together smoothly, hospitals won’t be able to collect the quality data they must produce to survive in the new era.

Given these pressures, it’s hardly surprising that hospitals and systems hope to stare down their massive IT costs by throwing their lot in with bigger partners.  Hey,  it’s certainly worth a try.