Hospital M&A Boom's Top 3 Drivers

John Commins, for HealthLeaders Media , September 5, 2012

A report from the Healthcare Financial Management Association succinctly explains the three primary drivers behind the rising numbers of hospital M&A:

  1. Lower payment rates from all payers will invite consolidation as hospitals look to reduce costs and improve economies of scale and market leverage with payers and vendors.     
  2. Physician-employees, technology, and regulatory compliance are driving up the cost of doing business. 
  3. Accountable care organizations reward integrated healthcare delivery that improves quality at reduced cost.

In the face of these headwinds, scores of otherwise stable and well-managed not-for-profit hospitals have joined with larger health systems in any number of partnership models. The strategy for many of them is to negotiate now from a position of strength rather than waiting for market pressures to force a move.
Last week, for example, Marquette General Health System in Michigan's Upper Peninsula finalized a $483 million deal that will make it the fourth hospital, and the first in Michigan, for investor-owned Duke LifePoint Healthcare, which itself was created two years ago in anticipation of the consolidation trend.
Marquette General CEO/President Gary Muller told me that the Duke LifePoint was one of 16 entities that showed an interest in acquiring the 315-bed specialty care hospital.

"The 16 proposals are pretty unusual because we were in a strong position," Muller said.

"Financially bottom line operating income was building up. All of our quality marks were good," he explained. "We didn't need to do anything but our board was looking ahead and saw that storm clouds are coming in healthcare and they acted preemptively. The analogy is selling your house when the roof is fine and the foundation is good and everything is painted and that is the way Marquette is."

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