Health System C-Suite Executives Emerge as Hospital Portfolio Managers

Healthcare systems and hospitals continued their consolidation trend through 2017 and the first quarter of 2018, with merger and acquisition activity remaining strong. Despite concerns over debt levels and divestitures by some large players like Community Health Systems and Tenet, the drive towards larger healthcare entities persists.

This trend is redefining the role of C-suite executives, who are increasingly becoming portfolio managers of their hospital and non-hospital assets. The primary goal is to maximize the value of these assets through strategic alternatives. While benefits like economies of scale, operational efficiencies, and standardized care are often cited, consolidation can also lead to increased prices in concentrated markets. As of late 2017, a significant majority of U.S. hospitals were already part of multi-hospital systems or networks.

Not all consolidation efforts have proven successful, with some health systems opting to divest or spin off hospitals. The rationale for mergers often includes achieving cost reductions through economies of scale and supply chain efficiencies, as well as increasing market share. However, the healthcare landscape is changing, marked by declining inpatient days and a shift of services towards outpatient settings.

In this evolving ecosystem, C-suite executives must focus on increasing growth, enhancing productivity, and reducing the total cost of care. Effective portfolio management is becoming essential, potentially involving the divestiture or closure of underperforming assets that disproportionately affect the overall financial health of the system. This strategic approach is critical as the industry moves towards more value-based care models.