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Healthcare M&A update: Thoughts from 4 industry leaders

Four industry experts discussed the current trends and strategies in M&A activity in the healthcare sector, in a panel led by Bart Walker, partner with McGuireWoods, at the Becker's Hospital Review 6th Annual Meeting in Chicago May 8.

James C. Hoffman, senior vice president of business development at Franklin, Tenn.-based IASIS Healthcare, said the biggest change in healthcare M&A strategy since the early '80s is the trend in geographic expansion, where organizations are working to create networks in specific regions, like Dallas, Texas-based Tenet Healthcare partnering with Baylor Scott & White Health in Dallas, for example. Systems are also divesting hospitals where necessary. IASIS divested some facilities to HCA where they felt they had a small footprint and wouldn't be able to capture significant market share, Mr. Hoffman said.

Gary Black, CEO of Kinston, N.C.-based Lenior Memorial Hospital, highlighted the recent trend of financially viable hospitals proactively looking at options for the future. He said his region in Eastern North Carolina has great economic difficulties and is often compared to a third-world country. However, despite the economic challenges, his hospital has been providing healthcare in the region for nearly 110 years. Lenior Memorial Hospital recently decided it was unlikely to function forever in this economic environment, so it it began looking for a partner, according to Mr. Black.

"The biggest thing for our board to deal with was to decide whether or not it was absolutely crucial that we offload risk," he said. The board went into the process committed to offloading risk and finding a new operator after receiving offers. However, he said, the hospital was fortunate to have a strong balance sheet and could adjust its goals to meet the needs of the community — through a partnership with a strong health system in North Carolina — while maintaining independence.

Jordan Shields, vice president of Juniper Advisory, said there has been an increase in joint venture activity between nontraditional partners. "We're seeing joint ventures pick up around the country between growth-focused, actively-backed for-profit operators and strong regional nonprofit or national nonprofit brands, and those have been successful so far."

Other trends Mr. Shields highlighted included increasing operating company/property company investments.

Greg Koonsman, senior managing director of VMG Health, said the industry may have underestimated the fierce independence of community-based hospitals and nonprofits. "People think there's been a lot of consolidation. I think the opposite. Consolidation has been very slow and it's going to take a long time," Mr. Koonsman said. "It may not even happen how we think it's going to happen."

Mr. Koonsman has seen significant investment in ancillary services and verticals related to the hospital, in a trend that echoes the late '90s. Hospitals and health systems are looking at partnerships with rehabilitation centers, urgent care facilities and imaging centers because they want access to these services without having to focus energy and capital on developing them on their own. "These relationships are all about gaining strength in the market across vertical lines and doing it with a partner that can get there quickly," Mr. Koonsman said.

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