Toby Cosgrove Hospital Consolidation – Business Insider
Consolidation is coming
During our conversation, Dr. Cosgrove pointed out that all of those trends, accelerated by the cost pressures of the Affordable Care Act, are pushing the industry in one direction — consolidation. “When you look at industries in the United States, particularly low margin businesses — and healthcare is clearly a low margin business — you figure that 25 percent of the hospitals right now are in the red, so it’s very low margin.” Cosgrove said. “What happened to airlines, what happened to supermarkets, what happened to bookstores? They all consolidated, they brought scale so they could drive efficiency. I think that’s what’s happening in healthcare right now.”
As a result, as Dr. Cosgrove says, “Hospitals are coming together in systems and systems are beginning to talk to systems.” His own Cleveland Clinic is talking to three facilities in the area about joining up.
It’s not just costs, healthcare has gotten more complex
It’s not just about costs and margins, it’s the increasing complexity of the healthcare business. “If you look at the back office, what it takes to drive a hospital now or even a doctor’s office, the IT, the contracting, the purchasing, you get advantages from scale.” Dr. Cosgrove said. “Simply, the dynamics are driving it, because it’s all so complicated to do it in private practice. I mean, think about the explosion of knowledge there’s been in healthcare. Docs don’t want to practice by themselves anymore, they simply can’t scrounge up all of the knowledge they need, so they’re looking too team up with other people to do it.”
A great example is Dr. Cosgrove’s own experience as a surgeon before he became CEO. “I started out as a chest surgeon. I used to do esophageal surgery, lungs, coronary bypasses, aortic aneurysms, valve surgery. Now you have doctors who do just esophageal or lung surgery, I did just valve surgery by the end of my career. The knowledge and the expertise has gotten so big that you’ve got to narrow your field.”
When fields narrow, it becomes increasingly difficult to have small practices.