Why Corporatization Occurs in Health Care -What Motivates Hospitals

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S Lipstein. NEJM 2025; 393: 1249-1251. Insight into Corporate Governance — What Motivates Hospitals and Delivery Systems

This commentary provides a useful perspective on how hospitals view consolidation of health care. This article is one of many on the topic of corporatization of health care in recent NEJM issues. The author pushes back on the notion that the motivation is purely financial. And, the author argues that a lot of the concerns with poor outcomes/life expectancy despite high expenditures in health care actually are related mainly to poverty level, gun-related mortality, and public social services expenditures.

Here’s an excerpt:

Critics of such large-scale combinations argue that when clinical assets are aggregated within contiguous geographic areas, there is market consolidation. And market consolidation leads to anticompetitive behaviors, resulting in higher prices without concomitant quality improvements, fewer small innovative providers left to disrupt the status quo, and depressed wages for health care workers.

Delivery system leaders view asset aggregation in a different way — as a vehicle for efficient deployment of human, physical, and financial capital to achieve a health care mission. Upsizing by means of mergers and consolidation, hospitals and delivery systems realize benefits that come with economies of scale, spreading fixed operating costs…over a larger base of patient care revenue. Aggregating hospitals and physician practices within contiguous geographic areas enables systems to make large investments in facilities and technology that serve more people and avoid costly duplication….

Large-scale aggregation of health care delivery enterprises helps level the playing field with large-scale payers…

Often underappreciated is the importance for health systems of cultivating managerial bandwidth and subject-matter competencies unique to health care. As a health system grows, it gains the ability to compete on a national scale for top talent and expertise…

Use of the term “corporatization” suggests that health care mega-providers are money-motivated, focused on goals that are all about the bottom line. But money motivation in health care is not unique to big corporations…

In my experience, governing boards of delivery systems have four expectations of their executive leaders. Each expectation drives a financial motivation to generate the requisite revenues, operating margin, and investment capital.

First, to take good care of people when they are sick or injured and to help people remain as healthy… the delivery sector must have the financial capacity to invest in workforce skill development and training, renewal and expansion of patient care infrastructure and technology, and business and enterprise management systems…

Second, to operate in a financially responsible way, a delivery system needs to generate a positive operating margin, meaning revenues greater than expenses…

Third, to position a health care enterprise for long-term sustainability, it requires the financial fortitude to withstand the vagaries of economic and political cycles that might jeopardize the future availability of services…

And fourth, to stay true to a social or academic mission, many health care institutions make substantial financial commitments to their local communities and affiliated universities…

Comparisons of life expectancy and health spending are unadjusted for important differences among countries, including household income and poverty levels, gun-related mortality, and public social services expenditures.2,3 Nobody benefits if we ascribe poor health outcomes to corporatization and ignore true determinants…

Until we devise better solutions to improve the health of people whose economic disadvantages and behaviors reduce longevity, the United States will continue to lag.

My take: This article explains how health care systems view consolidation. Overall, my view is that the costs associated with hospitals are too high and some of this could be curtailed without affecting outcomes (see: When Hospitals Look Like The Ritz (But Cost Even More)).

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