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M&A: Finding the Right Match

Margaret Dick Tocknell, for HealthLeaders Media, December 5, 2011
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Dowling knew that Lenox Hill needed a strong financial partner and that his health system would fit the bill. And he knew what Lenox Hill could offer North Shore-LIJ: a respected brand, strength in key service lines such as cardiac care and orthopedics, and access to Manhattan’s Upper East Side. North Shore-LIJ draws well from residents on the east side of the Van Wyck Expressway that splits Queens, but residents on the west side of the expressway tend to go to Manhattan for medical care. Lenox Hill provides North Shore-LIJ with an important foothold there.

Knowing what you’re looking for is critical to a successful M&A. It’s common for hospitals and health systems to have a team in place to keep an eye out for M&A opportunities to expand a brand, add service lines, or increase geographic reach. “That way we’re always ready when something comes along,” explains Paul Wiles, president and CEO of Novant Health. “We know right away if we’re interested or not.”

The Winston-Salem-based health system, which has 13 hospitals in North Carolina, Virginia, and South Carolina, as well as imaging centers in Georgia, focuses its M&A research efforts in that four-state area. Wiles says Novant’s first consideration in assessing a potential partner is quality care. It looks at CMS quality targets and patient satisfaction reports. It also looks at operating performance and business volumes. The hospital’s vision for the future is also important.

Everything is assessed in terms of potential performance. “If recent financial performance is subpar, do we believe it can be improved?” Wiles explains.

A few years ago Novant was looking to expand into Virginia and the Manassas-based Prince William Health System was on its radar. PWHS was in a somewhat precarious position after the FTC challenged its plans to merge with Inova Health System and the deal fell apart. In PWHS’s fast-growing Northern Virginia market, the realities of being a single-hospital system made it increasingly difficult to expand to meet local healthcare needs.

But Novant was ready. It contacted PWHS and asked to be included in any search process for another partner.

Cynda Tipple, COO of PWHS, says the health system did its homework, too, and had a good idea what it was looking for in a partner: a large organization with a focus on quality care, the capital to modernize its 168-staffed-bed hospital, and a willingness to expand clinical services.

Among PWHS’s selling points: It provided excellent care, its medical staff was supportive of a merger, and the system had recently invested more than $100 million to build and expand services, including a cardiac cath lab. Also, PWHS had a new community hospital planned in a fast-growing part of its service area.

Aided by a consultant, PWHS fired off a request for proposals to 20 potential suitors it thought could boost its market presence and help it compete more effectively. Its list included a mix of national and regional for-profit and nonprofit organizations.

Like Novant, PWHS reviewed a number of metrics, including quality indicators from CMS, financial performance, and patient, employee, and physician satisfaction scores.

“Culturally, Novant was a fit for us,” Tipple says. “Their commitment to quality really stood out. They prioritized safety and quality, which are areas where we were strong, but now we’re even stronger. They also had a strong track record of expanding services in their communities.”

Novant and PWHS clicked, and Novant pledged $200 million to help PWHS meet its facility upgrade and service expansion needs. They announced their merger in March 2009 and completed the merger in July 2009.

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