The recent acquisition of Massachusetts-based Caritas Christi Healthcare (including six acute care hospitals) by Steward Healthcare, LLC, an affiliate of Cerberus Capital Partners and of Detroit Medical Center (including ten acute care hospitals) ten Detroit area hospitals by Blackstone-backed Vanguard Health System have drawn attention to the possibility of a new wave of acquisitions of charitable hospitals by private-equity firms.
Whether these are isolated instances driven by the opportunities presented by specific factors in particular markets or indications of a broader trend in healthcare remains to be seen, but there is an increasing logic to transactions of the Steward and Blackstone types.
Could these transactions indicate a growing trend of acquisitions by private equity firms? And, what mechanisms can be put into action to avoid any potentially negative consequences of such acquisitions?
The federal healthcare reform legislation, the Patient Protection and Affordable Care Act, contains a variety of incentives that may stimulate private equity interest in acute care hospitals. Its inclusion of Medicare incentives for improving quality and the formation of accountable care organizations (ACOs) that may participate in gain sharing demonstrations presents opportunities for enhancing revenue and already serves as a harbinger of developments taking place in the private payer system.
Moreover, reforms in the payment system to promote efficiency in care delivery, under consideration at the federal and state levels and affecting both public and private payers, may create additional opportunities for effective management to improve margins in acute care hospitals.