M&A Forecast: 1 in 5 Hospitals to Realign Over Next Decade
As senior leaders at hospitals and health systems make drastic changes to their business models, they face unprecedented upheaval. The level of disruption to this highly regulated industry is unmatched compared with previous shocks such as the move to DRG payments by Medicare in the '80's, or the HMO explosion of the '90's.
The fact is, the incremental changes that hospital boards and CEOs are implementing around cost control, coordination of care, and expansion of the primary care base are not likely to be enough to maintain independence for a large percentage of hospitals and health systems.
That's evident simply from reading the daily news. You can count on seeing a merger or two, and big ones, pretty much weekly, as hospitals and health systems try to adjust to drastic expected declines in reimbursement over the next 10 years or so.
The news is coming so fast and furious that we're doing frequent "M&A Roundup" stories to effectively report on them. There are four mergers in this story alone. Unprecedented.
So what do we have to look forward to as reform progresses? More of these tie-ups, for one thing, just to adjust to the new revenue reality.
I had a revealing chat recently with Gary Ahlquist, senior partner with Booz & Company in Chicago. He had me flabbergasted when he suggested that hospitals can expect a 20%-25% decrease in revenue over the next 10 years.