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Achieve Financial and Clinical Impacts Through Mergers

Analysis  |  By Jonathan Bees  
   April 24, 2019

Health systems and hospitals engaged in M&A activity must remain focused on achieving core financial and clinical objectives.

Healthcare providers engaged in merger, acquisition, and partnership (M&A) activity must remain focused on achieving their core financial and clinical objectives, according to the 2019 HealthLeaders Mergers, Acquisitions, and Partnerships Intelligence Report.

In general, healthcare executive respondents indicate that M&A activity has had a positive financial impact on their organization, with 76% saying that net patient revenue either increased (57%) or remained the same (19%), and only 8% indicating that it decreased. Similarly, 66% say that operating margin either increased (32%) or remained the same (34%), and 17% say that it decreased.

However, survey respondents are less positive about the impact on the cost of providing care, with 59% saying that costs either increased (20%) or remained the same (39%). Viewed another way, a nearly equal percentage say that costs increased (20%) as decreased (21%), which suggests that M&A activity has not always succeeded in the important mission of bringing down costs.

Kevin Brown, president and CEO of Piedmont Healthcare, a Georgia-based nonprofit health system with 11 hospitals and nearly 600 locations, points out that increasing scale through M&A activity doesn't necessarily yield cost efficiencies in every aspect of a healthcare organization, and that the most attractive opportunities are not at the bedside.

"I don't think you get a lot of efficiency from scale directly at the bedside, such as in terms of labor costs. You get efficiency from scale for things like drug costs and eliminating the duplication of expensive services, hardware, and software. The supporting cast for capturing efficiency from increased scale comes from costs that are away from the direct bedside, such as the electronic health record platform or from having a single payroll system that allows you to process payroll at the lowest possible cost," he says.

Clinical impacts

The story for clinical impacts from M&A activity is also promising, with respondents mostly reporting positive views on the impacts their organization experienced after its most recent M&A activity. For example, a greater percentage say that patient readmissions decreased (18%) than increased (8%), although a large percentage (44%) report that this remained the same. And a greater percentage say HCAHPS scores increased (11%) than decreased (6%), although 48% say this remained the same. Lastly, a greater percentage say quality outcomes increased (23%) than decreased (8%). Forty-six percent indicate this remained the same.

For the 8% of respondents who experienced a decrease in quality outcomes and 46% that report this remained the same after an M&A, Brown questions the merit of making this sort of financial commitment. "Why would you do this if you can't improve quality?"

"First and foremost, Piedmont Health's M&A activities focus on care delivery and creating a more integrated product for the communities that we serve. The goal is to have an integrated product where everything is coordinated and connected, and through that we deliver a higher-quality, lower-cost model for our patients," he says.

Another somewhat troubling survey finding for clinical impacts are the high response rates for "don't know." The responses are 30% for patient readmissions, 36% for HCAHPS scores, and 23% for quality outcomes, indicating a disconcerting lack of respondent awareness of these important metrics.

"We look at the approximately 26 metrics associated with the Leapfrog Composite, which allows us to see performance in real time," says Brown. "And we've been able to determine that everybody that has joined the Piedmont family demonstrates improvement in these metrics fairly quickly. And not only that, many of the organizations that join us do some things around quality that are actually better, and we adopt those practices as well."

Jonathan Bees is a research analyst for HealthLeaders.


Healthcare M&A activity has not always succeeded in bringing down costs, despite the mission of hospitals and health systems to do so when consolidating.

Healthcare executive respondents mostly reported positive views on the clinical impacts their organization experienced after recent M&A activity, according to a HealthLeaders survey.

A troubling survey finding for clinical impacts are the high response rates for "don't know." The responses for patient readmissions, HCAHPS scores, and quality outcomes indicate a lack of respondent awareness of these metrics.

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