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Hospital Mergers Outlook Bright for 2011

John Commins, for HealthLeaders Media, January 10, 2011

The past year saw many hospital mergers and acquisitions, with private, for-profit hospitals or capital management groups using a recovering economy to scoop up distressed public health systems.

The top 10 hospital mergers and acquisitions of 2010 were valued at about $3.8 billion, and one observer predicts that this trend will continue in 2011, as healthcare reforms kick in, the economic picks up, and sharp-eyed investors with lots of money to spend look for bargains.

"We are going to see at least as much in 2011 as we saw in 2010 year," says Sanford B. Steever, a researcher with Norwalk, CT-based Irving Levin Associates Inc.

Hospital mergers and acquisitions picked up shortly after Congress passed sweeping healthcare reforms in March. "Before that there was activity but it was sort of meager, one-hospital deals. Once healthcare reform passed and everyone had a better idea of what the landscape was going to look like we started to see an increase in merger and acquisition activity," Steever said.

The reforms are supposed to expand health insurance to 32 million people, and "some of this consolidation creates the larger delivery network and allows the hospitals to capture their fair share of these additional 32 million people coming online," he says. "The only thing that might cause a ripple in 2011 is that the new Congress is rumbling about repealing the healthcare reform act. I don't see that happening because neither party has filibuster-proof majority."

Even before the healthcare reforms passed, Steever says there were good reasons to consolidate. "In some areas, particularly in cities, there were too many hospital beds. There is going to be consolidation there to save money, capture larger market shares, and improve bargaining positions with vendors and insurance companies. Those are not going away."

In addition, new U.S. Census data show the nation is in the midst of a population shift. "In the Northeast, adjustments have to be made because populations are moving away and you can't maintain those hospital beds," he says. "They're consolidating in the Southwest too because people are moving there and you have to be able to provide services. It's not a perpetual motion machine but it's pretty close." 

By far, the biggest domestic hospital merger of 2010 was the $1.5 billion acquisition of the Detroit Medical Center health system by private, for-profit Vanguard Health Systems, Inc.

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