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Hospital Mergers Continued to Climb in 2014

hospital mergersSince the approval of the Affordable Care Act in 2010, hospital consolidation has been on the rise and according to a report detailed in a recent Chicago Tribune article, 2014 followed suit with a “flurry of mergers, acquisitions and joint ventures.” The article features findings from a report issued by healthcare consulting firm Kaufman Hall, including that in 2014 95 deals were announced, down slightly from 98 in 2013 but up from 66 in 2010.

Passage of the Affordable Care Act (ACA) in 2010 increased pressure on hospitals to operate more effectively and efficiently, which has driven industry consolidation. The ACA favors a service model that rewards organizations for producing quality outcomes – not quantity – and many providers believe that compliance will be easier with the greater scale and integration enabled by mergers. Through consolidation, many also hope to be better positioned to attract new patients with expanded services and medical specializations.

Additionally, the ACA’s introduction of a massive wave of new patients into the healthcare system, combined with diminishing Medicaid and Medicare reimbursements, means that the business of healthcare is becoming increasingly expensive, especially for independent hospitals. Another challenge – and driving force behind consolidation – has been the need to upgrade IT systems and facilities to comply with rules and regulations beyond the ACA.

For example, the Health Information Technology for Economic and Clinical Health Act (HITECH) requires healthcare providers and doctors to implement Electronic Health Records (EHR). The Health Insurance Portability and Accountability Act (HIPAA) – and its new omnibus rule which went into effect in 2013 – also places a number of onerous requirements on hospitals. In this highly regulatory environment, many independent hospitals have chosen to consolidate in light of the immense capital investments required to comply with the new regulatory framework.

Kaufman Hall Managing Director Kit Kamholz explained, "As people have transitioned to high deductible health plans, they are really looking for things ... such as ease of access, low cost, high quality and tremendous value. Every hospital in America today has some level of cost restructuring going on.”

Kamholz said he anticipates the heightened hospital consolidation to continue "for the foreseeable future," and it’s a trend that seems to perpetuate itself: the more large, consolidated healthcare players there are in the market, the more difficult it is for independent hospitals to achieve desired economies of scale. Locally, Crittenton Hospital Medical Center’s recent acquisition represents how this trend is playing out in the state of Michigan, leaving only one independent hospital in metro Detroit. We touched on the local market implications of this trend in a recent blog post.

Foster Swift’s healthcare practice group has helped clients acquire numerous physician groups and three hospitals in just the last 12 months as part of the national trend to consolidate healthcare delivery systems. We will continue to track how factors like regulatory and economic challenges are reshaping our nation’s healthcare delivery system, and encourage you to contact us today to discuss how they impact your organization.

Categories: Health Care Reform, HIPAA, HITECH Act, Hospitals, News & Events

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Gary has nearly 40 years of experience and has earned a reputation for handling sophisticated transactions for hospitals, managed care organizations, HMOs, health insurers, physician groups and other provider entities and for helping his clients stay on top of complex regulatory issues, such as Anti-Kickback Statute, Stark II, Medicare, Medicaid, and BCBSM reimbursement appeals. 

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