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

"[They] are coming to that realization at varying speeds. Those at the forefront that are now considering partnership opportunities, whether it be fully integrated or less-than-fully integrated, see that their organizations have gaps as they move towards that transition."

Kamholz says that over the past three or four years there has been an increase in joint ventures or loose partnerships that do not involve a transfer of ownership or assets.

6-System Partnership to Cover 9 in 10 WI Residents

"What is really unclear at this point with those types of relationships is whether there is any real value and benefit to them," he says. "None of them have been around long enough to stand the test of time and prove out a business concept. A few of them have subsequently terminated after forming."

Even though consolidation has been raging for more than five years, Kamholz believes the hospital and health system M&As will continue at a frenetic pace for the foreseeable future.

"There is a point where you reach a size and scale and capabilities that allow you to be successful in the marketplace. The hospital industry is so fragmented right now that we aren't anywhere near that level," he says.

"If you look at the airline industry, there are four or five major airlines now. Look at the drug store industry. You basically have CVS and Walgreens. I don't see the hospital and health system base ever getting that consolidated. We are still very much a mom-and-pop industry. There is a long runway to go from 5,000 providers today, of which half are affiliated with systems, to a point where you have a real level of size and scale that can drive success in the hospital industry."

Froedtert, Ministry Health Care Pursue Co-Ownership of Network Health Plan

Froedtert Health and Ministry Health Care will pursue co-ownership of Network Health, a Menasha, WI-based health insurance plan, the two health systems announced Friday.

Network Health provides commercial and Medicare Advantage health insurance plans to employers and individuals in northeastern Wisconsin. The company has been solely owned by Ministry Health Care since 2012.

"The anticipated transaction will position Froedtert Health and Ministry to jointly expand the Network Health service area into southeastern Wisconsin with Network Health offering Integrated Health Network as its provider network in SE Wisconsin," Ministry Health Care CEO/President Nick Desien said in a statement released with the announcement.

"This is a natural partnership that flows from the existing Integrated Health Network of Wisconsin relationship between Ministry and Froedtert Health," said Catherine Jacobson, president and CEO of Froedtert Health and chair of Integrated Health Network.

Integrated Health Network is a clinically integrated alliance of independent health systems, hospitals, and physicians that includes: Froedtert Health, the Medical College of Wisconsin, Columbia St. Mary's, Wheaton Franciscan Healthcare, Agnesian HealthCare and Ministry Health Care. It is one of the first multiple–system accountable care networks in the country.

"With clinical integration, a proven care coordination model, and IT connectivity solidly in place, IHN has the infrastructure to contract directly with all payers and insurers on behalf of its members," said Jacobson.

Desien said the "partnership and expansion of Network Health will accelerate the growth of population health management programs in the communities we serve and we welcome the prospect of expanding our relationship and look forward to our continued discussions."

Ministry Health Care joined Integrated Health Network in September 2013. Since January, Integrated Health Network has been managing care for approximately 90,000 lives, including 55,000 lives through a partnership with UnitedHealthcare that created one of the nation's largest accountable care organizations.

Aurora Health Care, BAMC Sign Form Joint Venture

Aurora Health Care and Bay Area Medical Center agreed to form a joint venture, the two Wisconsin non-profit health systems said in a joint media release.

BAMC began the search for a partner in 2012 and identified Aurora in late 2013. The BAMC Board unanimously approved the agreement this month.

Aurora will serve as a minority partner in the 99-bed BAMC, adding capital and advanced services, while keeping health care local. The joint venture will allow for shared resources, such as technology and supply costs. In addition, the partnership will continue to improve the quality and efficiency of care for the community.

Aurora already has physicians and clinics in the Marinette area, but not a hospital, with the closest being a tertiary hospital, Aurora BayCare Medical Center, in Green Bay. The joint venture will provide BAMC with access to Aurora providers, depth of expertise in care management, supply chain and other areas.

In the coming months, the joint venture will establish its new board of directors, which will then develop a recommendation for facility, clinic and physician planning. BAMC will also work towards the same electronic medical record as Aurora, the two systems said.

Bay Area Medical Center is a 99-bed general acute care hospital located in Northeast Wisconsin. It includes a community primary/secondary care hospital, an outpatient surgery center, and a cancer center. BAMC offers select, advanced medical services, with an emphasis on heart & vascular care, women's services, diagnostic radiology, ambulatory surgery, obstetrics, cancer treatment, and emergency care.

Prime Healthcare Services Acquires St. Mary's Hospital in NJ

Ontario, CA-based Prime Healthcare has completed its acquisition of St. Mary's Hospital in Passaic, NJ. As part of the deal, Prime Healthcare will invest more than $30 million into St Mary's, which serves Passaic, Clifton, Wallington, Carlstadt, Rutherford/East Rutherford, and surrounding towns, Prime Healthcare said in a media release.

"Prime Healthcare is excited about its first partnership with a hospital in New Jersey and looks forward to helping St. Mary's Hospital provide the exceptional patient care residents of Passaic and the surrounding communities want and deserve," said Prem Reddy, M.D., FACC, FCCP, Chairman, President and CEO of Prime Healthcare Services.

"Prime Healthcare's motto is 'Saving Hospitals, Saving Jobs and Saving Lives,' and we plan to continue that at St. Mary's and help it become one of the best hospitals in the state and in the country."

Under the deal:

• St. Mary's will continue as an acute care hospital with all current services.
• Charity care levels for patients in need of financial assistance will be maintained.
• All existing employees will be hired; the physician base will be maintained.
• Catholic ethical and religious directives will be honored.

St. Mary's President/CEO Edward J. Condit said in a media release that selling the hospital to Prime will "strengthen St. Mary's financially so that it can dedicate more of its resources to providing even better community care."