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Will Your Merger Pass the Smell Test?

Philip Betbeze, for HealthLeaders Media, May 11, 2012

Whether or not you're contemplating a merger or acquisition of your hospital or health system, at some point, you probably will. Forces at work in healthcare that require big expenditures on technology, labor and acquisitions of allied health providers mean many hospitals and their leaders will go begging for the capital to complete these changes unless they can find a partner.

Let's be honest. Those needs might just put your organization at a disadvantage, perhaps ultimately a fatal one. The need to do something—anything—to immediately increase your scale seems imperative. A merger or acquisition with a deep-pocketed partner might get you out of that hole you're in.

Then again, it might help you unwittingly dig that hole a little deeper. A couple of recent decisions by the Federal Trade Commission to challenge hospital mergers in Ohio and Illinois sank those deals, and all the cash that went along with doing due diligence.  In the case of Promedica Health System and St. Luke's Hospital in Toledo, FTC actions ultimately torpedoed a merger that had already been completed.

Think of the costs. Think of the disruption, think of the opportunities to improve organically. All forever lost. With apologies to Will Rogers, when you find yourself in that hole, maybe it's better to stop digging.

Mergers can be enticing. Many are successful, and have given the parent systems the size, scale, and financial wherewithal to become leaders in taking on risk and transforming clinical care. The good news: Hospital mergers are still rarely challenged, and even more rarely are they overturned.

"Only a small fraction of consolidations are actually challenged," says Cory Capps, PhD, an economist at Bates White Economic Consulting in Washington, DC. "Remember, they're letting 90% of deals go through unchallenged."

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