Distressed nonprofit hospitals to elevate M&A, Moody's reports

Moody's Investors Service predicts merger and acquisition activity will grow and remain elevated for at least two years as financially distressed nonprofit hospitals seek solace in consolidation to avoid payment default.

Small hospitals with revenues of $500 million or less are most likely to be affected, according to Moody's. These providers are facing increasing regulatory and financial changes, leading to increased consolidation with larger, often for-profit hospital operators, which have been buffered from change by economies of scale.

Nonprofit hospitals have declined from 80 percent market penetration in 1999 to 73 percent penetration in 2003, according to Moody's, and, M&A volume in the first quarter of 2015 and fourth quarter of 2014 show the first significant transaction growth since 2012.

Moody's also notes M&A growth will result in increased proposed transactions that fail to close. "For small distressed hospitals, the inability to execute a consolidation strategy increases the probability of a payment default or bankruptcy filing because of the expenditure of time and limited resources spent analyzing the merger or acquisition," according to a Moody's report.


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