business

Hospital mergers, acquisitions expected to maintain quick pace

The activity is being fueled in part by nontraditional buyers entering the scene.

By Victoria Stagg Elliott — Posted April 2, 2012

Print  |   Email  |   Respond  |   Reprints  |   Like Facebook  |   Share Twitter  |   Tweet Linkedin

When a physician sells a practice to a hospital or becomes employed, he or she stands a good chance of getting a new boss.

Hospitals are merging or being bought and sold at an increasing rate, according to recent reports. Data released Feb. 28 by Irving Levin Associates indicated that 86 hospital merger or acquisition deals were done in 2011, the highest number in the past decade. Seventy-five happened in 2010 and 51 occurred in 2009. A report issued March 8 by Moody’s Investors Service said these trends will continue but did not predict how many mergers would take place.

Consultants said doctors should think about the possibility of a hospital merger or acquisition before they sign on with one.

“Physicians need to be looking with a critical eye,” said Lisa Bielamowicz, MD, managing director and national physician practice leader with the Advisory Board Co., a health care consultancy based in Washington. “Is the health system that I am aligning with going to be able to ensure my safety and my security across the next decade?”

The Moody’s report said these trends are driven by decreases in reimbursement, leading hospitals to seek economies of scale. Credit is still tight because of the ongoing effects of the 2007-09 recession, and hospitals are looking for added leverage in contract negotiations.

Health system reform has various incentives, such as those related to reducing readmission rates and establishing an accountable care organization, but qualifying for them requires closer links to other parts of the medical care chain.

Hospitals also may be looking for ways to deal with the burden of defined benefit pension plans. Moody’s has put out a series of reports noting that nonprofit hospitals are at risk of having their debt downgraded because of financial problems.

“Falling discount rates, lackluster long-term investment returns and federal requirements to be 80% funded have created overwhelming pension obligations,” the Moody’s report said.

In addition, hospitals are attracting money from health insurers and private equity firms that have not recently owned these facilities. “Everybody in the health care field is thinking how they can position themselves and who they want to be aligned with,” said Melinda Hatton, general counsel with the American Hospital Assn.

Highmark, a health insurer based in Pittsburgh, bought West Penn Allegheny Health System in June 2011 and said it is likely to buy more hospitals and practices in the area. Private-equity firm Cerberus Capital Management, which once owned Chrysler, bought the six-hospital Caritas Christi Health Care System, of Boston, in 2010, renamed it Steward Health Care System and turned it into a for-profit operation. Ascension Health, the nation’s largest hospital system affiliated with the Roman Catholic Church, struck up a partnership with private-equity firm Oak Hill Ventures to acquire distressed Catholic hospitals so they could stay open and keep their religious affiliation.

“I think private equity sees a market that is undergoing huge amounts of change and disruption and will very likely look very different than it does today,” Dr. Bielamowicz said. “The investment is high-risk but potentially high-reward as well.”

The activity could mean that when a physician’s employment contract is up in two or three years, he or she may be negotiating with a different company than the one they did when they first signed on. Experts say there most likely will be enough time to consider options.

“Most hospital mergers are slow-moving deals,” Dr. Bielamowicz said. “The physician contract should continue to be honored, and the physician can decide whether to stay or go.”

Experts say the merger-and-acquisition trends among hospitals are unlikely to dampen the enthusiasm most have for buying medical practices and employing physicians.

Back to top


ADVERTISEMENT

ADVERTISE HERE


Featured
Read story

Confronting bias against obese patients

Medical educators are starting to raise awareness about how weight-related stigma can impair patient-physician communication and the treatment of obesity. Read story


Read story

Goodbye

American Medical News is ceasing publication after 55 years of serving physicians by keeping them informed of their rapidly changing profession. Read story


Read story

Policing medical practice employees after work

Doctors can try to regulate staff actions outside the office, but they must watch what they try to stamp out and how they do it. Read story


Read story

Diabetes prevention: Set on a course for lifestyle change

The YMCA's evidence-based program is helping prediabetic patients eat right, get active and lose weight. Read story


Read story

Medicaid's muddled preventive care picture

The health system reform law promises no-cost coverage of a lengthy list of screenings and other prevention services, but some beneficiaries still might miss out. Read story


Read story

How to get tax breaks for your medical practice

Federal, state and local governments offer doctors incentives because practices are recognized as economic engines. But physicians must know how and where to find them. Read story


Read story

Advance pay ACOs: A down payment on Medicare's future

Accountable care organizations that pay doctors up-front bring practice improvements, but it's unclear yet if program actuaries will see a return on investment. Read story


Read story

Physician liability: Your team, your legal risk

When health care team members drop the ball, it's often doctors who end up in court. How can physicians improve such care and avoid risks? Read story