New Laws and Rising Costs, Essay Example

Mergers and acquisitions are positioning strategies focusing on expansion of the business, and new ways of providing the services. The adaptive strategy reviewed by Creswell and Abelson shows that the main reason why the merger occurred was to reduce operation costs and increase efficiency. The newly created entity will certainly acquire a higher market share in the area, however, some analysts fear that the bargaining power of the newly created health care organization would drive health insurance prices upwards.

The changes in payment structures to health care organizations under the Affordable Care Act triggered a market adaptation strategy to be implemented, and the hospitals wanted to achieve a higher efficiency. By creating a new, larger entity, the hospitals can centralize back office activities, and reduce administration costs. Today, a growing number of hospitals engage in horizontal integration to obtain a higher rate of growth and greater market share. While there are two main motivations of hospitals to merge, namely: higher efficiency and greater bargaining (negotiation) power, all of the recent hospital acquisitions and mergers are parts of a larger adaptive strategy that is triggered by the changes in the health care system and the funding structure.

A greater market share reduces the diversity of the market and competition, however, it provides certain benefits for organizations, which they might be able to pass on to patients. Larger organizations could spend more money on preventive health care programs, and will be motivated to keep customers out of the hospital. It is not necessary for large organizations to increase charges based on their increased market share. Mergers also allow hospitals to apply a related diversification strategy that can result in increased revenue.

Works Cited

Creswell, Julie and Abelson, Reed. “New Laws and Rising Costs Create a Surge of Supersizing Hospitals” The New York Times. Aug 12. 2013. Web.