Market and regulatory factors have unleashed a wave of merger, acquisition, and partnership activity that is changing the delivery of healthcare services.
This article first appeared in the June 2017 issue of HealthLeaders magazine.
Consolidation in the healthcare-provider sector has accelerated in recent years, reshaping the relationships between health systems, hospitals, and independent physicians across the country.
In the Buckeye State, healthcare consolidation activity has been a transformational force at OhioHealth, says Michael Louge, CPA, who serves as executive vice president and chief operating officer at the 11-hospital health system based in Columbus.
"When you look at OhioHealth, and you go back two or three decades, it was a much different organization. The reason it is different today is because of philosophy and the way we approach regional partnerships—how we have worked with physicians and hospitals in the region. Our whole organization’s evolution has been through successful partnerships and consolidations with regional players."
Over the past year, statistics have been gathered on the pace of healthcare-provider consolidation.
In a recent HealthLeaders Media survey, 159 healthcare executives—mainly from health systems, hospitals, and physician practices—were asked about their merger, acquisition, and partnership (MAP) deals.
Eighty-seven percent of the respondents said their organizations were expected to both explore potential deals and complete deals that were underway in the next 12–18 months. Only 13% of the respondents said their organizations were not planning MAP deals in that same time period.
From the passage of the Patient Protection and Affordable Care Act (PPACA) in 2010 through the end of last year, merger and acquisition transactions involving acute-care hospitals increased 55% from 66 announced deals to 102, according to Skokie, Illinois–based Kaufman Hall. Last year, the operating revenue of acquired organizations was more than $22 billion, according to the consultancy.
Kit Kamholz, managing director at Kaufman Hall, says two sets of drivers are propelling consolidation activity among health systems and hospitals.
"There are transactions that are driven by financial rationale. This is driven by a level of distress at the smaller organization, either from a historical-financial standpoint, an access-to-capital standpoint, or they are experiencing some significant clinical deficiencies. … The second bucket is in the category of strategic rationale. These are organizations that tend to be relatively strong financially, that are considered to be strong community-based providers in their marketplaces; but they are looking at the landscape of the evolving healthcare environment and saying, 'Do we have the skills and capabilities to be successful in this new era of value-based care?' "
Healthcare consolidation activity is impacting the country’s physician practices and physician-employment trends.
Christopher Cheney is the senior clinical care editor at HealthLeaders.