Growing Trend in Hospital Mergers

One of the dominant trends in contemporary healthcare is a surge in hospital consolidation. Despite the debate concerning the potential repercussions, there is ample evidence to conclude that hospital mergers and consolidation will leave a distinct mark on the healthcare industry. It’s also worth noting that hospital consolidation has also been including vertical integration between payors and providers (Woodson, 2015). Furthermore, mergers have become a key strategic maneuver as hospital executives intend to use mergers as a key growth mechanism during 2017. One of the primary motives for utilizing mergers as a growth mechanism is hospital executives expecting their capital needs to increase throughout 2017 (Dyrda, 2017). Another central motive for consolidation is the rising demand for improved facilities, superior equipment, and gaining access to new medical technology (Ellison, 2014).

Due to the clearly increased rate of hospital mergers and acquisitions (Kenan, n.d.), it is reasonable to conclude that hospitals want an efficient and effective means of valuing potential merger candidates. In addition, it is reasonable to conclude using a third-party valuation firm to conduct a fair market valuation analysis and fulfill an advisory role is a viable option in this scenario. This conclusion is reasonable since receiving qualified advice during the pre-planning stage typically results in a more systematic transaction (Roney, 2013). Furthermore, transaction efficiency is predicated on the type of advisory analysis conducted. An advisor must verify if the proposed transaction is beneficial for the hospital’s long-term prospects since a careful analysis could reveal if a merger candidate is suitable (Roney, 2013).

In an environment where hospitals have ample motivation to consolidate, regulators pay close attention to business activities. This is evidenced by the Federal Trade Commission (FTC) remaining resolute in its resolve to strike down mergers that appear inherently problematic (Gooch, 2016). In addition, hospitals need to carefully monitor key areas such as technology concerns and company documents (“Antitrust Compliance”, 2014). Moreover, there are likely to be more FTC interventions since the current medical landscape provides incentives for widespread consolidation in an economy heavily regulated by antitrust laws (Gooch, 2016). This is not a surprising market observation since the FTC has historically been committed to monitoring the healthcare industry with the intent of preventing potentially harmful increases in market provider power (Adamopoulos, 2013). There are a variety of economic motivations driving mass hospital mergers, including the following (Smidt & MacKenzie, 2015):

1. Access to capital;
2. Regulatory Requirements; and
3. A changing model of reimbursement.

Of the above factors, the most significant is regulatory requirements. The most compelling regulatory motivation for hospital consolidation is the Affordable Care Act which has made economies of scale in the healthcare industry a desired business model (Smidt & MacKenzie, 2015). However, there could be significant changes to the forces driving the ongoing merger trend. Repealing the Affordable Care Act could cause the rate of hospital mergers to decline. On the other hand, healthcare organizations may still pursue the cost-benefits yielded by economies of scale. What is known about future regulatory developments is that, according to an annual survey on merger and acquisition activity, a significant percentage of hospital executives consider future changes in the Affordable Care Act to be a chief concern for 2017 (Dyrda, 2017). Ultimately, the specific effects of new healthcare policy remain to be seen.

Woodson, B. (2015)[Web]. Behind Healthcare’s M&A Boom. Retrieved from. http://fortune.com/2015/08/18/healthcare-ma-aetna-anthem-cigna/

Dyrda, L. (2017) [Web]. 8 trends in healthcare mergers & acquisitions for 2017.Retrieved from. http://www.beckersasc.com/asc-transactions-and-valuation-issues/8-trends-in-healthcare-mergers-acquisitions-for-2017.html

Ellison, A. (2014) [Web]. Consolidation in Healthcare: 3 Statistics. Retrieved From. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/consolidation-in-healthcare-3-statistics.html

Kenen, J. (n.d.) [Web]. Getting the Facts on Hospital Mergers and Acquisitions. Retrieved from. http://healthjournalism.org/resources-tips-details.php?id=828#.WPEfN9LyvIU

Roney, K. (2013) [Web]. 20 Best Practices for Healthcare Mergers & Acquisitions. Retrieved from. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/20-best-practices-for-healthcare-mergers-a-acquisitions.html

Gooch, K. (2016)[Web]. 6 forecasts for healthcare M&A in 2016. Retrieved from. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/6-forecasts-for-healthcare-m-a-in-2016.html

Antitrust Compliance: Emerging Risks & Best Training (2014)[Web]. Retrieved from https://www.lexisnexis.com/communities/corporatecounselnewsletter/b/newsletter/archive/2014/06/10/antitrust-compliance-emerging-risks-amp-best-training-practices.aspx

Adamopoulos, H. (2013)[Web].Market Matters: How Major Hospital Mergers Have Avoided Antitrust Issues. Retrieved from. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/market-matters-how-major-hospitals-mergers-have-avoided-antitrust-issues.html

Smidt, P., MacKenzie, C. (2015) [Web]. Hospital Mergers and Acquisition: How to Plan and Execute a Successful Transaction. Retrieved from. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/hospital-mergers-and-acquisition-how-to-plan-and-execute-a-successful-transaction.html