So many hospitals deals are in the works in northern New Jersey that I use an ever-changing scorecard to keep track of them. A dozen deals are active at any given time, including mergers, acquisitions, affiliations, and partnerships.

At the top of my scorecard is a merger agreement between Meridian Health System and Hackensack University Health Network, two of the five largest health systems in the vast region spanning from the New York border south to Ocean County. But an even bigger deal is likely headed to the top soon, a merger between leader Barnabas Health and Robert Wood Johnson Health System.

This M&A surge is significant given northern New Jersey's lack of hospital consolidation for so long. And the latest deals signal a new phase in M&A activity that is likely to be played out in New Jersey, New York, and other areas of the country: health systems merging to create mega systems.

So one would think that means higher healthcare prices, right? That's the conventional wisdom; higher consolidation means hospitals gain leverage in contract negotiations with health insurers, which raise premiums to cover higher reimbursement rates. But consider the market dynamics. In northern New Jersey and other similar markets, a dominant insurer is pushing value-based reimbursement initiatives while inpatient volume is declining.

Horizon Blue Cross Blue Shield of New Jersey dominates the northern New Jersey market with almost 40 percent of health plan enrollment, according to HealthLeaders-InterStudy data. With a dominant insurer calling the shots and inpatient discharges decreasing, the focus for a health system changes from seeking big rate hikes to securing a steady volume of patients through such means as a narrow network. At the same time, health systems are preparing for population health management so they can succeed eventually in risk-based contracts.

Horizon is making steady progress toward its goal of covering most of its members in plans with patient-centered programs. It's participating in nine accountable care organizations, operating several bundled payment programs, and expanding its medical home program significantly. The insurer's motivation is to improve healthcare quality while reducing costs, and these initiatives have been shown to accomplish this. Horizon is moving from paying for quantity of care to rewarding quality of care as measured by numerous metrics, including preventive care as well as acute care.

To succeed in this value-based environment, health systems need greater scale, a strong integrated healthcare delivery system, sophisticated health information technology, and an emphasis on improving the health of the population. Financial survival is tough for independent hospitals, so I would expect to keep adding deals to my M&A scorecard. And time will tell whether market dynamics have shifted enough to challenge the conventional wisdom about hospital consolidation.

Follow Deborah White on Twitter @DeborahWhiteDRG

Pivoting a product launch during the pandemic

View Now