Wednesday, December 15, 2010

More on Merger Mania

There is a flurry of mergers and acquisitions in the health insurance and hospital industry. There are several driving forces creating this activity. The first is the mandate to obtain electronic medical records both by individual providers, and hospital systems. The federal government is incentivizing this activity but also holding a big stick threatening penalties in reimbursements if providers do not adopt EMR and HIT systems.

The second factor is the proposition to form Accountable Care Organizations (ACOs).

The merger mantra is not fueled by healthcare reform, the rationale is market share.

The acquisition of HIT is expensive, either way. However hospital administrators wish to capitalize on size for market share, as well as IT. Other HIT requirements regarding interoperability amongst differing hospitals creates the need for forming regional health information exchanges. Merging two entities into one enables easier legal requirements for exchanging data without the complexities of separate Health Information Exchanges. The incentives offered by the federal government to fund EMR and HIE are inadequate, and do not take into consideration ongoing maintenance expenses. To be sure, reimbursements will continue to decrease just as the water level subsides when the tide goes out.

The health care market place has already seen mergers, such as [Humana-Concentra[,[ Community Health Systems-Tenet Care], [Steward Health Systems-Merrimack Valley-Neshoba Valley], [Peace Health System – Southwest Washington Medical Center][Inova Health Systems – Prince William Health System ]

These mergers and the need for IT mean big business for IT hardware and software vendors.

There have been several mergers and dissolutions amongst EMR vendors. Misys was purchased by All scripts about 24 months ago. That marriage dissolved quickly in June 2009, when Misys dumped Allscripts by merging it with Eclypsys, another EMR software vendor. Mike Laurie read very well the signs of demand for HIT companies in purchasing Misys, and then taking a quick profit by dumping Allscripts when it became evident that the EMR market is highly competitive and not very profitable.

Wise investors in Health IT and software must have knowledge and expertise about much minutiae and realize that HIT software is not something bought off the shelf. The applications are highly specialized in a market that is not user friendly amongst providers.

The number of overall mergers peaked in 2006, and the number of independent hospitals as opposed to hospital systems has decreased during that same time period (see figure)

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