An increasingly popular strategy for healthcare organizations striving for efficiency, cost control and sustainability is to engage in hospital merger and acquisition (M&A) activity. The record-setting 115 healthcare organizations merger and acquisition deals in 2017, with a 146 percent increase in value, points to the rise in this trend.
Kaufman Hall predicts that 2018 will exceed the number of hospital merger and acquisition deals with megamergers being behind much of this growth. Healthcare organizations intend to reduce costs, offer additional care services, and create a larger footprint in the local market. We will look at what these consolidated systems mean for healthcare costs, quality and how they add value.
LIKE-SIZED HEALTHCARE ORGANIZATIONS ARE MERGING, WHILE HOSPITALS ACQUIRE PHYSICIAN PRACTICES
Colorado-based Catholic Health Initiatives’ merger with Dignity Health in California in December 2017, the largest deal in this sector, created the largest non-profit health system, with 139 hospitals and over 700 other care sites across 28 states bringing in more than $27 billion in revenue. A merger of equals demands a transformation of the healthcare system involving the ability to reduce the total cost of care, manage the health of populations, and introduce innovations such as precision medicine.
To extend their reach into the community, hospitals are also busy acquiring physician practices with almost 5,000 being acquired from July 2015 to July 2016 alone.
WHY A SUDDEN SPIKE IN MERGERS AND ACQUISITIONS?
Providers are joining larger organizations to understand a patient’s entire healthcare journey better and seeking new capabilities for a consumer-oriented and value-based health system. Through partnerships, healthcare organizations are seeking economies of scale by caring for a large patient population which helps providers offset potential financial risks and to achieve cost and care efficiencies.
CAN M&A REDUCE COSTS?
According to a report by Deloitte and The Healthcare Financial Management Association, healthcare organizations usually take two or more years to generate cost savings, and one-half of healthcare leaders also see care improvements after the merger or acquisition.
AVOIDING ANTITRUST CONCERNS AND ENSURING HEALTHY COMPETITION
The Federal Trade Commission (FTC) and state law enforcement officials laid out regulations for acquisitions to ensure the combined entity does not create a monopoly in a particular market. Under less pressure to reduce their costs, post-deal hospitals and health systems use their market power to negotiate higher claim reimbursement rates. Healthcare organizations will need to review their practices, procedures carefully, and facility cultures during and after a merger to ensure that the staff is adequately prepared and trained for new challenges.
STRATEGIES FOR HIGH-VALUE HOSPITAL MERGERS AND ACQUISITIONS
To ensure hospital mergers and acquisitions work for the providers and the community, healthcare leaders should ensure they focus on integration. Integration team leaders should be identified as early in the merger and acquisition process as possible with the specialist pinpointing possible challenges and implementing a detailed integration plan.
Proactively identifying and transacting strategic deals and laying out an integrated growth strategy by performing self-assessments to identify their organization’s strengths, weaknesses, and opportunities will result in higher quality care or lower costs to the provider, patient, or healthcare system.