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What's Ahead for Hospital Consolidation: 4 Healthcare Leaders Respond

Hospitals and health systems have experienced an uptick of merger and acquisition activity, and that activity has extended beyond hospital-hospital mergers to hospital-surgery center and hospital-physician practice deals. Here, four healthcare leaders share their thoughts on the future of this growing trend.

Timothy H. Baker, President, Principle Valuation: Based upon the amount of activity in the beginning of the year, it appears as though there will be more transactions this year. It seems more and more imperative to take hold of market share and believe consolidation will be the most practical tactic — whether it be purchasing a competitor or purchasing an ASC as well as physician practices.

Marc E. Koch, MD, MBA, President and CEO, Somnia Anesthesia: Implementation of the requirements within [healthcare reform] brings with it many expected uncertainties, but there is also the certitude of unexpected uncertainties that can and will erode decision-making confidence. A sector afflicted with uncertainty, lack of confidence and muddled expectations will not be conducive to hospital transactions.

Joseph R. Lupica, Chairman, Newpoint Healthcare Advisors: I think there will be more hospital transactions, but not always for the right reasons. Collaboration with other hospitals and providers can bring better patient care and less destruction of a hospital's reimbursement going forward, but ACOs and intelligent network arrangements may suit many communities better than the blunt instrument of "a deal." Hospital leaders must examine all options for collaboration and not fall prey to the panic of the moment — often stirred up by aggressive health systems, transaction advisors pushing a deal or the conventional wisdom that independent community hospitals are headed to extinction in (pick a number of) years.

Kevin Phillips, Partner, Jarrard Phillips Cate & Hancock: Future successful health systems will have scale and breadth, which is driving acquisitions and consolidation between healthcare providers at almost every level — from hospitals to ASCs to physician practices to post-acute care facilities and more. You can treat a single illness or disease at a facility, but you manage the wellness of a community by being pervasive throughout that community.

Acquisitions will only intensify in 2013. There may be fewer for-profit acquisitions of not-for-profits than in the past 18 months, but more joining of two not-for-profits. Conventional wisdom proclaims that bigger is better. More and more, hospitals (particularly small- to medium-sized hospitals) are realizing they need critical mass to be successful in the face of healthcare reform. Reform almost forces partnerships…but that is counter to the scrutiny of the FTC, so something will need to give and rules will need to catch up with the modern definition of service area and market share.

Why partner? Because hospitals need access to sophisticated IT infrastructure and systems, as well as a financial buffer to deal with increased patient volume and declining reimbursements. Those things are hard to do when you’re a stand-alone organization.

More Articles on Hospital Consolidation:

Fitch: U.S. Hospital Consolidation Activity Highest in Decade, Spurred By Healthcare Reform
The Dangers of "Too Big to Fail" Hospital Systems
Report: Hospital Consolidation Will Cause Massive Inflation

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