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Hospital Transaction Outlook for 2014: 6 Things to Watch

Hospital merger and acquisition activity surged to a high level between 2011 and 2013, and 2014 is shaping up to be no different.

According to a whitepaper from healthcare financial advisory firm Ponder & Co., there are six specific trends to watch as the year unfolds.

1. For-profit chains may be less aggressive. Last year, the hospital world was defined by several large mega-mergers. Two of the most influential were mergers between Franklin, Tenn.-based Community Health Systems and Naples, Fla.-based Health Management Associates, and Dallas-based Tenet Healthcare Corp. and Nashville, Tenn.-based Vanguard Health Systems. The for-profit, acute-care hospital sector is now highly consolidated. CHS and Tenet are not likely to pursue new, large acquisitions during the next 12 months, according to the whitepaper, as they continue to absorb the new systems and streamline operations.

2. Large, healthy nonprofit systems are wary of troubled hospital transactions. Increasingly, more small and mid-sized community hospitals are experiencing heavy operating pressures. While many financially struggling hospitals still have hope of finding partners, nonprofit systems will look at those types of deals with a much more critical eye. "Many of these systems are currently being approached by numerous hospitals seeking larger partners to be the white knight," the whitepaper reads. "Not-for-profit systems do not have unlimited capability for such deals and are often very protective of their bond credit ratings."

3. There are still likely to be many large, nonprofit transactions this year. Much like the CHS and Tenet deals, there were several large nonprofit mega-mergers last year. Ponder & Co. advisers believe the nonprofit sector will remain active, especially when it comes to large systems. For example, Orlando (Fla.) Health and Wellmont Health System in Kingston, Tenn., have both announced they are actively looking for partners.

4. Regional system mergers will increase. Ponder & Co. and other healthcare experts believe mid-size, regional health systems (or those with $800 million in annual revenue to several billion dollars in annual revenue) will create partnerships, perhaps in adjacent markets, to "broaden regional strength, take scale to a new level and prepare for the healthcare changes ahead."

5. Some states are running out of independent hospitals to acquire. Health system transactions may be on the rise because, simply put, many states are running out of independent community hospitals. For example, Ponder & Co. analysts said Virginia has only seven independent hospitals with more than 100 beds. Many states, and markets, have almost reached their saturation point.

6. Outpatient facilities will be more appetizing than inpatient. Acquiring inpatient, acute-care hospitals garners much of the attention, but the inpatient side is no longer the "money maker" of a health system, according to the report. Large outpatient centers and other clinical integration groups have become bigger pieces in the M&A game.

More Articles on Hospital Transactions:
Private Development Group Wins Long Island College Hospital Bid
Troubled Transactions: Why There's Still Hope for Financially Struggling Hospitals
Reverse Merger? The Curious Case of Jefferson Health System

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