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Hospital Survival May Depend on Mergers

Karen Minich-Pourshadi, for HealthLeaders Media, October 11, 2010

Then at the onset of October, Saint Joseph Mercy Health System in Ann Arbor, Mich., and IHA, one of the largest physician group practices in the Ann Arbor area, announced a merger. The intent of the merger is to create an integrated health network and help both providers prepare for changes in healthcare delivery brought on by national health reform. Looks to be a good way to expand the physician network and ensure more stability for both the hospital and the group practice.

Michigan is a good example of what many hospitals and health systems are starting to do across the country—hey are coupling in order to deal with uncertainty. But there was more to my ponderings on whether hospitals should pursue a pairing.

While following a spate of hospital and health system mergers, last week I read two S&P reports that piqued my interest. The first was Volatile Times Continue for Speculative-Grade Health Care Providers. In it, the ratings service looked at how nonprofit hospitals and health systems on the lower end of the rating spectrum are doing. Their analysis of the current healthcare situation is that these lower-rated hospitals and health systems face a multitude of challenges that are resulting in a ”disproportionately larger percentage of downward rating actions within the speculative-grade category and a greater number of providers joining the speculative-grade ranks.”

While overall S&P believes that there is a return to stability for the healthcare sector, the report notes that the downward pull on the speculative-grade rating trend will likely continue, at least in the immediate future. Some of the challenges dogging these lower-rated providers include

  • operating losses
  • weak demographics
  • limited business position
  • balance sheet metrics characterized by high debt and low liquidity
  • aging facilities requiring high capital spending to fix (which some providers can’t afford)
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