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Conditions are right to grow more. It remains a very active credit market for well-positioned health care systems, said Kevin Holloran, senior director at S&P Global Ratings, which is based in New York City. Credit availability is good, rates have been good for the past 18 months and that should continue for at least the short term. At the same time, directors at small hospitals have grown concerned about the challenges of providing the latest medical services. Reimbursement from the government and insurers is under pressure and medical specialists often prefer practicing in large urban areas over small towns, where earnings are lower. We have come to the conclusion that the fate of small, independent hospitals is pretty much sealed, said Paul Spears, a retired gastroenterologist and chairman of the Hanover Hospital board of directors, who couldve been speaking for any number of small hospitals in America. The evolution of medicine, and especially the payment for insurance and medicine, does not allow a small, independent hospital to continue to survive on its own. Hanover, a 93-bed hospital in York, Pa., voted in March to partner with PinnacleHealth System, a three-hospital system based in Harrisburg. Dr. Spears declined to discuss specifics of the deal, saying it had not been finalized. Pennsylvanias frenzied hospital consolidations worry Patrick Moran, president of benefits consultant InGroup Associates Inc. in Lancaster, who said the savings promised from consolidation may be inflated. I havent seen any data supporting the idea that bigger health systems help control costs, Mr. Moran said. They may help lower costs for the health systems themselves, but they havent lowered costs for the consumers. PG graphic: UPMC affiliations (Click image for larger version) Pressure on small hospitals Health care consultants say passage of the Affordable Care Act in 2010 sparked a wave of hospital consolidations as administrators seized on size as the big stick in negotiating contracts with health insurers and accessing capital. Squeezed by lower reimbursement, rising costs for new technology and difficulty recruiting doctors is driving an increasing number of small hospitals into the arms of bigger systems. Regulatory uncertainty, underscored by the turmoil in Washington over repeal of the Affordable Care Act, has only added to the anxiety that small community hospitals are experiencing, making the prospect of merging with a larger system an increasingly attractive option, experts say. Larger systems can deliver the economics of scale and line up the bond markets, identify best medical practices, said Kevin Kennedy, principal at ECG Management Consultants in Seattle. Smaller facilities have more questions about their future and ability to survive. In some deals, smaller hospitals simply turn over the keys to the building in exchange for promises that the local community will continue to get medical care, a mission that has become too problematic for a small provider to handle alone. Like WCA Hospital renamed UPMC Chautauqua WCA many smaller hospitals have roots reaching back generations, serving their communities through floods and flu epidemics and logging accidents, so turning over the reins to somebody else is never easy. It has been the source of great community pride, said Dr. Spears of Hanover Hospital, an institution founded in 1926 by owners of Hanover Shoe.
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