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Moody's: 5 Key For-Profit Hospital Consolidation Trends

A new report from Moody's Investors Service forecasts for-profit hospital consolidation activity as providers adapt to the changing industry.

The for-profit hospital world has experienced significant consolidation activity recently. Earlier this month, Dallas-based Tenet Healthcare Corp. completed its acquisition of Nashville, Tenn.-based Vanguard Health Systems, a transaction valued at $4.3 billion. Additionally, Franklin, Tenn.-based Community Health Systems is in the process of acquiring Naples, Fla.-based Health Management Associates, a merger that will be worth an estimated $7.6 billion if it goes through.

As hospital operators prepare for the implementation of major healthcare reform provisions, what lies ahead for hospital merger and acquisition activity? A new report from Moody's Investors Service Lead Analyst Dean Diaz includes the following key takeaways concerning the future of for-profit hospital consolidation.

1. Consolidation will accelerate. Acquisition activity will likely continue at a high rate as for-profit hospitals prepare for major aspects of healthcare reform, according to the report.

2. Continued consolidation will give providers more bargaining power with payers. Commercial health insurers have merged, forming large entities that can put pressure on healthcare providers in reimbursement negotiations. Continued hospital consolidation will make the balance of power more equal, according to the report.

3. Upcoming reimbursement cuts will intensify the need for scale and efficiency. Moody's predicts the shift to value-based payments will drive providers to leverage administrative costs, investments in infrastructure and purchasing power.

4. Hospitals will aim to diversify to control costs. As providers shoulder more risk concerning the cost of care, hospitals will look to own or control as many points of care as possible, such as surgery centers, physician offices and imaging centers. Moody's expects for-profit operators to pursue acquisitions to grow these service lines.

5. Ultimately, healthcare will remain a local business. Hospital operators' local market presence will still drive their ability to increase volumes, attract physicians and negotiate with payers, according to Moody's.

More Articles on Healthcare Consolidation:
Keeping Healthcare Local: Why Some Providers Choose Non-Ownership Collaborations Over Mergers
Tenet Closes on $4.3B Vanguard Acquisition
Market Matters: How Major Hospital Mergers Have Avoided Antitrust Issues 

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