Financial pressures and an increasingly competitive market are driving the consolidation of hospitals in New Jersey. While traditional hospital mergers and acquisitions will continue, an uptick in non-traditional alliances will also occur in 2020.

Barry Ostrowsky, president and chief executive officer of RWJBarnabas Health, said in 2020 he expects there will be health systems making either acquisitions or entering into transactions with non-institutional partners such as big physician groups and outpatient programs and services.

“While I think there will continue to be transactions, acquisitions and consolidations, they will be more on the outpatient physician side rather than on the inpatient side,” said Ostrowsky.

Cathy Bennett, president and chief executive officer of the New Jersey Hospital Association, said New Jersey’s health care entities will continue to explore innovative partnerships, affiliations and collaborations that help them provide high-value care to their communities.

“That may very well include more of the traditional mergers of hospitals and health systems we’ve seen in recent years. I also think over time we may redefine what mergers look like, as health care entities look outside the four walls of the hospital to community-based providers of care – or even beyond to other new entities in the health care space, from retail providers to accountable care organizations to social service providers,” said Bennett.

As for Brian Gragnolati, president and chief executive officer of Atlantic Health, he said consolidation of health care systems will continue in some form. However, a big question is how it will benefit patients and consumers.

“Here at Atlantic, the end goal is not to pursue scale or size because the ultimate test isn’t about consolidation. Quite frankly, it is about making sure that our patients who are becoming more and more like traditional consumers are the center of everything we focus on.”

Gragnolati said Atlantic’s main focus for growth is how many patients the system reaches and what services it can provide.

“We need to make sure once we’ve had an opportunity to care for those patients, that they stay within our clinically integrated network. And if that requires us to bring in other ambulatory partners through joint ventures or acquisitions or other hospital health system partners – we will do that but it has to follow a purpose,” Gragnolati said.

Forms may differ

Hackensack Meridian Health Chief Executive Officer Robert Garrett said partnerships would continue because it makes sense for hospitals or health systems to collaborate with like-minded organizations in order to achieve their mission and goals.

“But partnerships come in different forms,” Garrett said. “What is leveling-off is traditional mergers and acquisitions. I think they will still stay strong but they may not grow to the extent that they have in the past. We will likely see more non-traditional partnerships in 2020.”

But Bridget Devane, public policy director for the Health Professionals and Allied Employees union, said she does not anticipate a slowdown in mergers and acquisitions in 2020.

Quite frankly, it is about making sure that our patients who are becoming more and more like traditional consumers are the center of everything we focus on.
-Brian Gragnolati, CEO, Atlantic Health System

Devane noted that while mergers and acquisitions can be beneficial, deals also have drawbacks.

“In the early stages of affiliations or mergers our members see them as potentially positive because it potentially means greater resources – and as hospitals struggle, we were seeing this as a way for hospitals to survive.”

Devane said the coordination of services can help keep institutions viable.

However, she noted that the rise in “mega-mergers” has caused concern for her union’s members.

“Coordination among all of those facilities that were part of mega-mergers has not always benefited the workers or patients,” said Devane.

For example, costs have not always gone down and coordination in some cases has been challenging, she explained.

While a merger can be scary, particularly for some employees and the community, the American Hospital Association says combinations can also bring cost savings that come from greater scale; drive quality benefits from additional volume, result in the standardization of clinical protocols and expand the scope of services available to patients.

HMH’s Garrett pointed out that being part of a bigger system and the sharing of best practices has the promise of improving quality.

“And the promise of achieving certain efficiencies. Part of the plan is to provide more ambulatory care and better access for patients in the communities that we serve. It is about enhanced quality, increasing efficiencies, lowering costs and ultimately making health care more affordable,” said Garrett.

The benefits of a merger, acquisition or partnership on a consumer in the community can be significant, said RWJBarnabas’s Ostrowsky.

“So what did this do for the consumer? The answer has to be that it strengthened the clinical programs that are most proximate to the communities you serve and it perhaps extended teaching programs or it enabled the local institution to take on newer technology.”

The fate of independent hospitals

While it is unlikely that independent hospitals will disappear from New Jersey, industry observers contend that their numbers will continue to dwindle.

“At the end of the day, whether it is next year or the year after, there will be far fewer independent hospitals and they will all want to be part of some system in some way,” Ostrowsky predicted.

HMH’s Garrrett said while he doesn’t believe that independent hospitals will go away entirely, unless they are in a market where they really can survive under the changing forces in health care, it is going to be very difficult for them not to seek an alliance.

At the end of the day, whether it is next year or the year after, there will be far fewer independent hospitals and they will all want to be part of some system in some way.
-Barry Ostrowsky, president and CEO, RWJBarnabas Health

“I think the independent hospitals will partner even if they choose not to merge into a bigger health system,” said Garrett.

NJHA’s Bennett asserted that successfully navigating a merger could put a health system in a better position to respond to changes in the industry – from better coordination along the continuum of care, to being in a stronger position with payers. But no two mergers are alike.

“And likewise, I think you will continue to see individual hospitals in New Jersey that ‘go it alone’ very successfully.”

Southern exposure

Most of the hospital mergers and acquisitions in 2019 took place in central and northern New Jersey, but South Jersey is ripe for increased activity next year.

RWJBarnabas’s Ostrowsky said that not unlike what has been occurring in the north where there has always been competition with New York hospitals, South Jersey has a similar concern with Philadelphia hospitals, which are expanding, consolidating and wanting a piece of that market.

“My guess is to the extent that there will be activity in South Jersey; much of it will be instigated by trying to protect itself against the Philadelphia market,” said Ostrowsky.

“It is a ripe market,” Garrett agreed.

In addition to South Jersey being a more competitive market, Garrett said health care-focused private equity firms are investing money in southern New Jersey.

HPAE’s Devane said the union is keeping a close eye on outreach efforts by southern New Jersey health care entities into Pennsylvania.