However, Goldstein says, unlike 12 years ago the current push is fueled by new variables that include the stagnant economy, spiraling healthcare costs, and unfunded pensions. What's more, this latest wave of consolidations is being initiated by a new group of investors that mostly weren't in the picture a dozen years ago, including insurance companies, for-profit hospital companies, and private equity firms.
"This country was founded on not-for-profit healthcare. Historically hospitals have been roughly 85% not-for-profit or government owned, and 15% for-profit," Goldstein says. "It is not balanced at all, but we may see some movement in those numbers. The for-profits are aggressive. Their strategies are all about growth and returning shareholder value, and you do that through growth."
After bunkering for years in a stagnant economy, Goldstein says for-profit entities are looking for investments. "They have resources," she says. "Many of the for-profits held their cash on the sidelines during the recession and the credit crisis, and now they are ready to put it to work. We could see some increased for-profit activity."
Goldstein says private equity firms such as Cerberus Capital Management have acquired hospitals because they see the successes of for-profit systems such as HCA, Vanguard Health Systems, and Tenet Healthcare Corp. "They see the margins the for-profits produce, which are very strong, and they say, 'We need to put our money to work. If these guys are getting a good return, we're going to do it too,'" she says. "Typically, the for-profits run very lean operations."
Goldstein says these for-profit players do not appear to be overly concerned with expected thinning reimbursements from government and private payers, in part because the for-profits can better control their patient mix.