The Affiliation Option: Half Step or Future State?
Many organizations are finding they can standardize clinical care and achieve economies of scale through deals that stop well short of a traditional merger or acquisition. But can such partnerships last?
This article first appeared in the June 2015 issue of HealthLeaders magazine.
One question plaguing hospital and health system senior executives is whether their organization has the size and the scale to effectively manage a major business disruption underway in healthcare. If it doesn't, seeking to acquire or be acquired may once have been the only choice—but no longer.
Many organizations believe they can find the same benefits on a much quicker time frame, and with less of the political fallout that arises in hospital M&A. Earlier this year, Tenet Healthcare finally bowed out of a proposed acquisition of five hospitals in Connecticut after years of regulatory and political wrangling. With time of the essence in adapting to provisions of the Patient Protection and Affordable Care Act, as well as the commercial shifts going on simultaneously, such delays can put necessary changes on hold amid the uncertainty. Even if a merger does go through, the cultural aspects often are much trickier than the financial details involved in M&A.
Hospital and health system consolidation is on the upswing for a variety of reasons, chief among them the belief that growth will come from efficiency, economies of scale, and lower-acuity health interaction and management. However, traditional mergers and acquisitions decreased to 72 hospital transactions in 2014 from 86 in 2013, a 14% decrease, but remained elevated historically, according to Irving Levin Associates, which has tracked such statistics for decades.