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4 Features to Flaunt to Attract an Acquirer

Although HHS has clarified many new or recent regulations and given providers better direction for compliance, the healthcare industry still faces a flood of changes unlike any this country has seen since the introduction of Medicare.

These sweeping changes have contributed to a surge in merger, acquisition and partnership activity, says Tony Kong, director in healthcare and private equity at Chicago-based West Monroe Partners.

"This is an interesting time in history where former competitors are partnering together to deliver quality patient care," Mr. Kong says. "They've had to invest a lot of capital into meaningful use compliance, HIPAA 5010 and the October 2014 ICD-10 mandate."

Here are four key areas that may influence hospitals' decisions to partner or sell to another facility, according to Mr. Kong.

1. Information technology. Hospitals or physician-owned practice groups that already have a strong health information technology system are more appealing to buyers, Mr. Kong says. This is because it can eliminate the need to build and install a new health IT system, which saves time and millions of dollars in integration costs. "IT is certainly one of the interests [buyers are] using to make partnership decisions and should be a key part of the due diligence phase of the transaction," Mr. Kong says.

Furthermore, a significant investment to train staff is necessary to ensure effective use of this technology. Hospitals that already have a strong electronic health information system and a successful track record integrating it into patient care and revenue cycle management workflows have an attractive feature for potential buyers, he says.

2. Size. Hospitals and health systems that deliver quality of patient care, achieve high patient satisfaction scores and carry a strong brand perception will be known as premiere providers in their respective markets, Mr. Kong says, which allows them to attract new populations of patients more easily and allow them to expand their clinical services to new geographies.. A buyer will be more likely to acquire a hospital that still has room to grow but also has a low-risk of losing market share to competitors.

3. Payor leverage. One of the biggest draws a selling hospital can play up with buyers is how much leverage they have with local health plans. "What we're seeing in the trend is larger hospital systems are in a stronger position now to negotiate with payors. It's a classic case of volume drives negotiations," Mr. Kong says.

"Also, we're seeing a lot of hospitals starting to explore different types of relationships with payors," he adds. Hospitals with innovative and integrated provider-payor partnerships, such as accountable care organizations and quality-based reimbursement contracts, can gain favor from potential buyers, Mr. Kong says.

4. Quality control. The Patient Protection and Affordable Care Act is placing an emphasis on quality outcomes and patient satisfaction which directly impact a hospital's bottom line through incentives and eventually penalties for non-compliance. A hospital looking to be acquired can bring more potential buyers to the table if it can demonstrate strong quality controls and high patient satisfaction rates, Mr. Kong says.

Quality also extends beyond patients' satisfaction with their hospital stay to include the ease of the billing process, and even employee training, retention and morale, Mr. Kong says. Hospital buyers will pay a premium for hospitals or physician-owned practice groups that show strength in these areas, which indicate happy workers and patients.

More Articles on Hospital Partnerships:

Mountain States Health Alliance to Acquire Unicoi County Memorial Hospital
UPMC, Highmark Each Partner With Butler Health System in Pennsylvania
MedWest Leaders Exploring Spinoff, Fear Carolinas Operator Would Bail

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