The rapid consolidation among health systems over the last five years will likely continue through the next decade, with financial stressors, growth of non-traditional healthcare settings and changes in care delivery driving the trend, according to a new report by Deloitte, an audit, consulting, tax and advisory services firm.
Between 2013 and 2018, the market share — based on patient revenue — of the 10 largest health systems grew to 24% and their revenue increased at twice the rate of the rest of the market. The revenue growth rate of the top 10 health systems was 82% in those five years as compared with 45% for all other health systems and independent hospitals in the market.
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Overall, health systems have gotten larger, with the average number of hospitals per health system increasing slightly from 6.4 in 2013 to 6.5 in 2018. But large health systems (with more than 30 hospitals) saw the biggest increase — the average number of hospitals per system in that cohort jumped from 64.6 in 2013 to 68.4 in 2018.
Looking to the decade ahead, care delivery is expected to become “more virtual, prevention/well-being-focused, consumer-centric and equitable,” the report states.
These trends will result in a drop in demand for inpatient beds over the next 10 years, due to which inpatient hospital revenue will be 35% lower and demand for hospital beds will be 44% lower than today, according to the report. This means fewer hospitals will be needed by 2030, likely resulting in an increase in consolidation activities.
Health system consolidation is expected to occur in every geographic area due to the decrease in demand for beds and inpatient revenue. Consolidation will be more likely in areas with declining or flat population growth and hospitals with poor financial performance, the report states.
Of the 390 metropolitan statistical areas across the country, 61 are most likely to see consolidation, according to the report. In these areas, a 67% drop in demand for hospitals beds is expected.
In the other 329 metropolitan statistical areas, hospitals are also likely to consolidate, but to a lesser degree. The demand for beds in these areas will decrease by 21% to 56%, estimates show.
“Care delivery is changing. Hospital business models are changing. The concept of scale is changing. To survive and thrive, especially post-pandemic, healthcare executives should look at their options and carefully consider M&A a key part of their strategy going forward,” said Ion Skillrud, principal at Deloitte Consulting LLP, in a press release.
For the report, the Deloitte Center for Health Solutions analyzed several databases, including the Medicare cost report and Irving Levin databases, 2014-2018. For more details on the methodology, view the report here.
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