October 14, 2020

Coming together for the common good—that is the basis of most mergers.  That’s what a marriage is at its essence.  It is a melding of two formerly independent individuals into a single and unified family.  The prospect of a marriage is greater happiness for both parties.  Similarly, the purpose of a business merger is to create a better, more efficient and more successful entity.  It builds on the ancient axiom that the whole is greater than the sum of its parts.  Aristotle would no doubt have approved of what we’re seeing today in the world of healthcare integration.  Mergers and acquisitions (MAs) appear to be part of the normal evolution of hospitals and health systems in America; but, like the hope of marriage, does it truly lead to greater happiness?

The Plusses and Minuses

A November 2017 article in Politico contained a pessimistic appraisal of the trend toward consolidation in the healthcare industry.  It cited several reports that indicated the real result of merger mania was rising patient costs and lower accountability to the local community.  It noted that, “hospitals with effective monopolies have prices more than 15 percent higher than hospitals in markets with four or more competitors.”  However, according to a report published late last year by the American Hospital Association (AHA), there are key advantages to combining forces with another facility, as determined by certain studies.  Here are just a few:

• Mergers decrease costs. Due to increased scale, acquisitions decrease costs and are associated with a statistically significant 2.3% reduction in annual operating expenses.
• Mergers often facilitate quality improvement through updating clinical operations across a health system, implementing consistent best practices and enhancing the promise of technology and data analytics.
• Revenues per admission at acquired hospitals decline by a statistically significant 3.5% relative to non-merging hospitals, which suggests that “savings that accrue to merging hospitals are passed on to patients and their health plans.”
• Mergers can lead to enhanced quality through the expansion of clinical best practices, as evidenced by statistically significant declines in the rates of readmission and mortality rates following mergers.
• The creation of scale leads to enhanced infrastructure and expanded care capabilities.

Despite all this reported upside, there are those that counsel caution when it comes to buying up or aligning with large facilities, such as community hospitals or regional medical centers.  It has been noted that some hospital systems have actually been unloading facilities in recent years.  Why would this be?  Obviously, market and other forces affecting certain sites have dictated a reconsideration in the value of certain hospitals.  In other words, just as careful analysis must go into the decision to merge or acquire, so too must healthcare decision-makers continue to monitor the performance of their new sites.  If they begin to underperform, an analysis must be undertaken to determine the causes and possible fixes (such as greater technology investments and better recruiting efforts).  If it is determined that, due to unforeseen or irrepressible factors, the facility will continue to spiral downward, asset divestiture must be considered.  All this requires an agile leadership team that is able to make data-based judgments and timely decisions.

Creating a Checklist

Assuming you are looking to expand—whether by merger or acquisition—you will want to be meticulous in your due diligence.  After all, a multi-million-dollar deal is going to involve a significant amount of data to review and issues to consider.  You might begin the process by researching the successful consolidations in the recent past that involved a hospital or system similar to yours that merged with or acquired a facility that fits closely with the one you’re currently considering.  You should begin by trying to answer the following questions:

• What did the executives in that deal do to make it work?
• How long did the process take?
• What was the cost of the process?
• What specific items did they consider?  (Warning: there may be hundreds.)
• How were each institution’s teams organized for interaction and negotiation?

Researching what others have done in a similar market may be a good starting point for putting together your own MA checklist.  This will obviously depend on the extent to which the information is accessible.  Learn what you can and apply what will work in your situation.  There’s no reason to reinvent the wheel if someone else has used it to roll on to success.

A Possible Rut in the Road

Like so many in business have discovered over the years, there is the ever-watchful eye of the government to consider.  Federal and state officials love to pass laws and generate rules that often restrict the merger process.  The healthcare industry is no exception in that regard.  Those hospital executives who are actively considering MA projects should be aware that, just this year, the head of the Federal Trade Commission (FTC) spoke to this particular issue.  According to a February 24 tweet, FTC Commissioner Christine Wilson stated, “the FTC will closely scrutinize every hospital merger.”  She went on to clarify that she was not, by that comment, intending to indicate that the agency would “challenge” every hospital merger.

So, while your prospective MA venture may not be stopped at the outset by federal forces, you should understand that it will not be a walk in the park either.  You will want to assemble a team—including legal experts—well acquainted with how to overcome the potential bureaucratic roadblocks now in place to your prospective expansion plans.

Fortunately, we at MiraMed Global Services have both experience and expertise in helping hospitals in this area.  If we can be a source of help to you in the merger or acquisition process, please reach out to us at info@miramedgs.com.