3 reasons why hospital mergers are advantageous
With tight margins as the uninsured population grows and uncertainty as healthcare reform approaches, hospitals and physicians groups across the country are seeking merger opportunities.
In 2011, there were 86 hospital merger and acquisition deals, up from 77 in 2010, and 107 physician group merger and acquisition deals, up from 67 in 2010, according to Irving Levin Associates, Inc. This flurry of mergers marks a momentous occasion as the way healthcare is delivered is changing and hospitals struggle to survive in this competitive market.
3 Reasons Why Merging Is Advantageous
Struggle to Survive:
Small, not-for-profit and other types of hospitals seek mergers for a range of reasons as the atmosphere to stay afloat grows tougher. Not-for-profit hospitals throughout the U.S. are reducing unprofitable services while expanding more lucrative lines to help protect margins. A 2009 American Hospital Association study of 1000 hospital executives found one fifth of them reduced services that lost money including: behavioral health, post-acute care and patient education services while investing in services that deliver profits like neuro-surgery and interventional cardiology.
Mergers are seen as way to help struggling hospitals through these especially tough times. When merging with a larger system it can help with capital needs as well as with technology and infrastructure upgrades. Recently, St. Luke’s Hospital and Health Network publicized its acquisition of Warren Hospital in Phillipsburg with plans to revitalize maternity services and pour $6 million in for the intensive care unit.
New Model of Healthcare:
Covering uninsured patients’ expenses, coping with diminishing government reimbursements and the upcoming challenges of healthcare reform are forcing hospitals everywhere to look at cost effective ways of managing care. Merging plays an important role in allowing hospitals to experiment with innovative new forms of healthcare such as the accountable care organization. Sanford B. Steever, Ph.D., editor at Irving Levin Associates, Inc.’s commented that he expects to see hospitals continue to engage in mergers and acquisitions in order to successfully position themselves for building accountable care organizations.
Community Matters:
A hospital serves its community and in doing so should keep the community informed and contented on the development of a merger. When hospitals change from nonprofit to for-profit it can have a large impact on the community such as reduced charity care and the ability to meet other local needs. Another case that may arise is when a religious based hospital system merges with a non-affiliated system and one health systems guidelines affect the other system such as reproductive sterilization. Merging can strengthen a facility’s relations with the community; helping with community health needs as well as the possibility of new service lines.
Hospital mergers allow for integration of patients’ care through new healthcare models, the ability to take on the financial risk tied with overseeing groups of patients and simply, the ability to continue providing care to patients in the community.
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