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Strategic Thoughts for Independent Hospital Consolidations

At the Becker's Hospital Review Annual Meeting in Chicago on May 17, Carsten Beith, co-head of tax-exempt M&A for Cain Brothers; Mike Finnerty, senior vice president of Kaufman Hall; Victoria Poindexter, principal at Hammond Hanlan Camp; and Trey Crabb, managing director of the healthcare practices for Ziegler Investment Banking, shared strategic thoughts for consolidations and independent hospitals in a panel moderated by Adam Lynch, vice president of Principle Valuation.

Mr. Beith started the session emphasizing that the type of investments and strategies an independent hospital should consider is dependent on its healthcare environment. For instance, an environment where a hospital is paid for managing health and disease states for patients would necessitate different investments and strategies — thus, different transactions.

Mr. Finnerty agreed with Mr. Beith, adding that the healthcare transaction market is different than in the past based on the volume of deals and what hospitals are looking for. "Today, hospitals are looking for market share first and foremost — How big is the hospital? What is its market share percentage? It is less about acquiring facilities and more about increasing footprint," said Mr. Finnerty.

Mr. Finnerty also noted that healthcare reform has also been a catalyst for some of the change in the healthcare transaction market.
Mr. Lynch followed Mr. Finnerty's comment by turning the conversation toward whether hospital consolidation is preparatory for healthcare reform and new models of care.

Ms. Poindexter believes that organizations are using consolidations to position themselves for healthcare reform, especially since quality and efficiency will continue to be critical regardless of healthcare reform outcomes. However, some hospitals are not certain of what federal healthcare reform will exactly entail. Other factors are also causing consolidations. "Economic distress and demographic shifts are still causing changes despite healthcare reform, so organizations are responding to those changes more than healthcare reform possibilities. The need for greater economies of scale is also driving the consolidations," said Ms. Poindexter.

Mr. Crabb agreed with Ms. Poindexter in that hospitals are trying to increase their market share — their economies of scale — through transactions. "Whether or not the health systems know what they will do with the scale once they have it — that remains to be seen. How quickly the need to get there also remains to be seen. However, no matter which way they go, the cost advantages need to be there," said Mr. Crabb.

More Articles on Hospital Consolidations:

Restructuring or Turning Around a Hospital: It Doesn’t Mean Bankruptcy
How Hospital Leaders Can Evolve Strategies in the Short and Long Terms

 

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