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Business Roundup: M&A Activity Down Slightly in First Half of 2014

John Commins, for HealthLeaders Media, August 18, 2014

Healthcare organizations "are coming to the realization as they transform from the fee-for-service to fee-for-value environment that they don't have the skills and capabilities and resources and experiences necessary to successfully do that transition," says an industry analyst.

Hospital and health system mergers and acquisitions dropped slightly in the first six months of 2014 but not enough to suggest any stalling of the industry-wide trend toward consolidation, KaufmanHall consultants say.

In the first of 2014, 43 hospital/health system M&As were announced, compared with 46 in the first half of 2013, says Kit Kamholz, managing director with Kaufman Hall.

"We really don't see it slowing down. We see continued consolidation at these levels," Kamholz says. "If we go back to 2009 or 2010, there were probably between 50 to 60 transactions done and now we are closer to 90 or 100. So the activity has almost doubled over that five-year period on an annual basis."

Of the 43 fully integrated transactions involving change of ownership so far in 2014, forty were acquisitions of not-for-profit organizations—33 by other not-for-profit organizations and seven by for-profit organizations. The total operating revenue of the acquired providers was $10 billion. The transactions occurred across a range of acute-care segments, including not-for-profit, for-profit, rural, urban, and academic health centers, KaufmanHall reports.

Kamholz says M&As are part of a healthcare industry-wide trend toward consolidation and the general belief that bigger is better when it comes to economies of scale, patient populations, market share, and leverage with payers.

"Organizations are coming to the realization as they transform from the fee-for-service to fee-for-value environment that they don't have the skills and capabilities and resources and experiences necessary to successfully do that transition," Kamholz says.

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