Because of significant changes in reimbursement, consolidation continues to accelerate. Small, distressed hospitals are seeking large partners to meet the demands of the evolving hospital/system market and to fund capital needs. A June Sector-in-Depth report from Moody’s Investors Service details why the authors expect merger and acquisition activity to remain high over the next one to two years.
- Distressed not-for-profit providers often consider consolidation with larger for-profit entities to avoid payment default.
Distressed not-for-profit hospitals with revenues less than $500 million may view consolidation with a larger provider as a means to avoid payment default, bankruptcy or to fund capital needs. Moody’s notes that in many instances the acquirer is a for-profit hospital operator looking for growth opportunities. “As a result, for-profit entities have achieved greater market penetration over the last several years.”
- As smaller providers face increasing financial challenges, consolidation becomes more widespread.
All hospitals are dealing with reductions in reimbursement, shifting patient volumes (for example, inpatient to outpatient) and increasing capital needs, especially IT upgrades. Larger providers have greater economies of scale so they can more effectively address industry challenges. Small, distressed hospitals can benefit from acquisition by a large provider that is well equipped to handle these challenges.
- However, the complexity of mergers and acquisitions sometimes results in failed attempts to consolidate, which often leads to smaller providers looking for new partners.
Mergers & acquisitions are complicated and sometimes do not result in the desired outcome. “For distressed hospitals, the inability to execute an M&A strategy may increase the probability of payment default or bankruptcy.”
(Under Threat of Default, Distressed Hospitals Turn to Mergers and Acquisitions, Moody’s Investors Service, June 22, 2015)
Consumerism: Strategic and Financial Implications, Part One is in your library now. In this course, Mark Grube (Kaufman Hall), Marian Jennings (M. Jennings Consulting) and Nathan Kaufman (Kaufman Strategic Advisors) discuss the move to consumerism in health care and some of its effects.
For a complete list of iProtean courses, click here.
For more information about iProtean, click here.