More hospital mergers on tap in 2011

The single stand-alone hospital may be a “concept of the past” according to an expert on hospital mergers and acquisitions who spoke at the HIMSS11 conference in Orlando, Fla., on Monday.

John Reiboldt, managing director of Coker Capital Advisors, indicated that many of the same market drivers that made 2010 a good year for hospital mergers will likely continue into 2011.

“Hospital M&A is no longer a dirty word,” Reiboldt said. “These transactions are increasingly accepted by hospital management and boards of directors.”

Reiboldt spoke at an education session titled “Acquisitions and Mergers in the Hospital Market.” He said many hospitals and health systems view the acquisition of – or mergers with – other facilities as a viable strategy for long-term growth. A merger or acquisition offers hospitals an opportunity to increase their market share, he noted.

“The M&A process should be one aspect of a hospital’s strategic plan,” Reiboldt said. “If you’re selling your hospital, don’t be afraid to create value. And buyers, don’t be afraid to spend the money to do the job right.”

Many stand-alone hospitals face great economic uncertainty, Reiboldt said, making a sale appealing to leadership. Add to that an increased regulatory burden, the threat of a return to managed care and challenges with physician employment, and an increasing number of hospitals are beginning to feel that a merger or acquisition makes good strategic sense.

“Many stand-alone hospitals have limited access to capital and will be unable to handle increased patient volumes as our society ages,” Reiboldt said. “Selling your hospital to a larger system means gaining access to economies of scale and scope.”

For many distressed not-for-profit facilities, consolidation is a defensive measure. In contrast, for larger health systems doing the buying, an acquisition is an opportunity to add new services and enter new geographic regions, Reiboldt said. Diversifying the patient base and the payer mix are often equally important to health systems acquiring other facilities.

Reiboldt offered a few suggestions for hospitals considering a sale or merger.

“Understand both your local and national markets to know what buyers are seeking,” he said. “Strategic and operational factors generally outweigh financial metrics in an acquisition. Outline your goals before the transaction process begins, and be sure to vet all your alternatives to a complete sale.”