Hospital M&As Continue Apace in 2011

Hospital mergers and acquisitions continued at a robust pace in 2011 as providers used consolidation and market share to elbow out competitors, improve economies of scale, and leverage better prices with vendors and insurers.

The top 10 hospital mergers and acquisitions in 2011 were valued at $5.6 billion, up from $3.8 billion in 2010, according to Sanford Steever, editor of The Health Care M&A Information Source, published by Norwalk, CT-based Irving Levin Associates. Hospital M&A carried a total value of about $7.3 billion in 2011.

In all of healthcare, including hospitals, drug and device makers, distributors, and health insurance companies, mergers and acquisitions were valued at about $236 billion in 2011, one of the busiest years in a decade, and up from $206 billion in 2010, Steever says.

"Activity is up over the previous year, although there haven't been any huge portfolio deals," Steever told HealthLeaders Media. "There has been a lot of activity in the middle market."

The year's two biggest hospital deals—each valued at more than $1.4 billion—include Highmark's acquisition of the five-hospital West Penn Allegheny Health System, and HCA's purchase from the Colorado Health Foundation of its 40% interest in the seven-hospital HealthONE system.

Most of the structural factors that drove M&As in 2010 were still in play this year. "The healthcare delivery system…remains fragmented. Hospitals will combine to create economies of scale, perhaps create some synergies by combining operations, and increase their patient base," Steever says. "The countervailing force is that the delivery of healthcare is local. So, you want to focus on the local but provide as broad a network as you can. If you're a member of a multi-hospital system, you probably have a better bond rating and more clout with vendors and insurers."