Question: Are we seeing another big wave of hospital acquisitions like the 1990s?
Dave Atchison: We went for quite a long time with a relatively small number of deals, especially involving investor-owned hospitals. Now there is this flurry of activity in both the first and second quarter of this year. I was particularly impressed by Vanguard’s move to buy Detroit Medical Center for $1.4 billion.
Q: What are the targets of these acquisitions?
DA: The available hospitals are the weak hospitals. The self-standing county hospital that sees the need to align. Of course, some hospitals are too weak to be acquired. No one wants a hospital if its value is less than its debts or it has high Medicaid or Medicare volumes. And rural hospitals are too small to run efficiently.
Q: Why are the big systems buying hospitals now?
DA: Growth is an imperative for large healthcare systems. The stock market is going up, values have increased and there is a relatively low cost of debt. For-profit systems like Vanguard are looking for a large revenue base because that’s easier than having to grow a system. And systems seem to be positioning themselves for healthcare reform. In the future, integrated health systems will abound.
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