Although many hospitals/systems currently may be evaluating whether to acquire or merge with another organization, a recent report notes that only about 10 percent of community hospitals (approximately 551 hospitals) have been a part of a merger or acquisition transaction from 2007 and 2012. (“AHA Report Says Hospital Mergers Don’t Harm Competition,” Health Lawyers Weekly, June 07, 2013 Vol. XI Issue 22)
But rather than stifle competition in the market, it appears that the overwhelming majority of mergers and acquisitions “are pro-competitive and fully support the twin goals of higher quality and more affordable health care,” according to the report recently released by the American Hospital Association and the Center for Healthcare Economics and Policy. (“How Hospital Mergers and Acquisitions Benefit Communities: A New Report from the Center for Healthcare Economics and Policy,” AHA, April 2013.)
The Center for Healthcare Economics and Policy reviewed merger and acquisition data transactions and measured the impact of the transactions by Metropolitan Statistical Area (MSA)—a geographic region with relatively high population density and its core and close economic ties throughout the area. It determined that most transactions have been “modest,” averaging one to two hospitals acquired per transaction.
It further noted that of those hospitals involved in a merger and acquisition transaction, all but 20 have occurred in areas where there were more than five independent hospitals. The report authors concluded that “there were plenty of hospitals left following the transaction to maintain a competitive marketplace.”
So the question is: what about the effect on competition and service delivery in the markets within which the 20 transactions occurred? Did the merger/acquisition benefit the community, or did it cause the loss of needed services? The authors of the report noted that there is a story behind each of these 20 hospitals—each story compellingly illustrated how the merger/acquisition actually benefitted the community. For example:
- Nearly half of these hospitals had 50 or fewer beds and may have been struggling to secure essential capital or specialized expertise.
- Other small or critical access hospitals received a financial commitment from the acquiring hospital/system to either improve cash flow, develop new services, purchase new information systems or, in one case, to construct a replacement hospital with expanded services.
- Larger hospitals that were acquired or merged with an even larger facility also received similar commitments from the acquiring organization.
The report’s authors concluded “The numbers of and the stories behind the transactions demonstrate that mergers and acquisitions are supporting the changing landscape of health in a positive way.”
Of particular use to hospitals that may be considering consolidation is an independence dashboard, described by Dan Grauman (DGA Partners) in the iProtean course Affiliation & Consolidation Strategies, Part One:
“The dashboard should be customized and tailored around the needs of every specific organization, and it serves as a way for the board to get key assessments and pieces of information from management, on a regular basis—quarterly or semi-annually—about the ability of the hospital to remain independent and to be viable.
“The dashboard ought to be organized by the major organizational attributes of a hospital. The attributes include:
- How the organization is doing in its marketplace, and how its patient volume are trending
- The stability of its relationship with its physicians and the degree of physician alignment at the hospital
- The organization’s financial situation—cash, profitability now and over the next year or two and overall debt and capitalization structure
- The readiness level of the organization to deal with the new and emerging payment models—is the entity evolving, transitioning to be able to be ready to handle a population health accountability and management approach?
- Each hospital owes it to itself to really take a look in the mirror and judge the effectiveness of leadership, both management and the board.
“Metrics and measures that relate to those five organizational attributes ought to be agreed upon, looked at, analyzed and assessed on a regular basis. If you see deterioration in one or more of those key attributes, it’s probably time to start thinking about affiliating in some way or some form to ensure the long-term viability of the hospital.”
iProtean subscribers, for more information on mergers and acquisitions, please note the two advanced courses: Affiliation & Consolidation Strategies, Part One and Part Two in your course library. These courses feature Marian Jennings, Lisa Goldstein, Dan Grauman and Monte Dube. In addition to information on the independence dashboard, these experts discuss the continuum of options available to hospitals when considering formal partnerships/consolidations with another organization, emerging models for consolidation and how consolidation affects credit ratings.
For a complete list of iProtean courses, click here.
iProtean Symposium & Workshop
Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED). For more information, click here.
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