Moody's: More distressed hospitals seek mergers to escape financial troubles

The pace of merger and acquisition activity in the healthcare industry has accelerated since the passage of the Patient Protection and Affordable Care Act, and Moody's Investors Service expects the pace to continue as distressed nonprofit hospitals look to join larger providers to avoid defaulting on debt or filing for bankruptcy.

The Moody's report highlighted several transactions that involved smaller financially distressed hospitals joining larger providers. The report examined Citrus Memorial Hospital in Inverness, Fla., which had $140 million in operating revenue before Nashville, Tenn.-based HCA acquired it in 2014.

Moody's noted Citrus Memorial Hospital's financial picture was similar to many other struggling facilities at the time it was acquired. "For distressed hospitals, operating revenues are typically well below the median of $590 million for the not-for-profit providers we rate," said Moody's.

Moody's also highlighted that nonprofit hospital boards of trustees are becoming more willing to sell to for-profit hospital operators. At the end of 1999, the hospital market in the U.S. was comprised of about 80 percent nonprofit entities and 20 percent for-profit entities. By the end of 2013 the layout was shifting, with the hospital market comprised of 73 percent nonprofit entities and 27 percent for-profit entities.

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