HealthLeaders' The Winning Edge for Transforming Through M&A identified key areas that organizations should strategize for.

Mergers and acquisitions will always be a vital strategy for providers to achieve growth and sustainability, but the context shaping the dealmaking landscape continues to change.

Hospitals and health systems right now are dealing with a volatile environment consisting of inflationary pressures and business adversity risk, forcing CEOs to be thoughtful, yet willing, in pursuing integration.

In HealthLeaders’ The Winning Edge for Transforming Through M&A this week, University Health CEO Ed Banos and Aspirus Health CEO Matt Heywood discussed current trends and success factors for organizations considering consolidation.

Here are three areas leaders at the highest level are accounting for in their M&A strategy:

Balancing financial health and patient care

The reality of hospital M&A is that while it may be necessary for the viability of some organizations, it can also potentially have a negative impact on patients and communities.

A recent study published in the Journal of the American College of Surgeons found that quality of care was either lower or unchanged 77% of the time after integration, whereas 93% of cases showed increased prices.

The problem, however, is that organizations can't provide the kind of care and access that is necessary for their community without ensuring the bottom line is strong enough to keep the doors open.

"In our organization, our motto is to be a strong, vibrant organization first and foremost Then, if that means we make tough choices, then we need to make tough choices," Heywood said. "We need to make sure that our services are there for our community. They just may have to be there sometimes in a different location or in a different manner."

That can make M&A a bit of a balancing act, but diversifying is a way for hospitals to alleviate some of the financial burden and serve patients in a better manner at the same time, according to Banos.

For example, University Health has implemented and grown its Hospital at Home business, which has decompressed a lot of patients that don't need to be in hospitals but are still sick enough to require care.

Banos said: "When you're looking at a merger and acquisition, what is the business that they can bring you that is going to help fund some of the uninsured commitments that we have as a public institution so that you make money on the good so that you can help pay for the underinsured?"

Outpatient investment

A significant trend that is influencing M&A activity currently is the push by providers towards offering more outpatient sites of care.

Organizations like Community Health Systems and Ardent Health have targeted the acquisition of urgent care centers recently to leverage their profitability and cost-friendlier models in comparison to inpatient care.

Kaufman Hall's most recent National Hospital Flash Report showed that outpatient revenue per calendar day jumped 7% month over month in October, outpacing inpatient revenue's increase of 1%.

"Driving the cost down is very, very important and when you can treat a patient in an ambulatory setting or even through population health and public health, you can try and manage illness and well-being before it becomes an acute issue," Banos said. "We know that in the long run will prevent high-cost admissions for sure on your underinsured or uninsured."

Focusing M&A investment on outpatient services may not make sense for every organization though. For Wausau, Wisconsin-based Aspirus Health, the rural market it serves requires a higher acuity capacity to deal with an aging population and their severity of illnesses, according to Heywood. That's leading to a greater emphasis on hospital beds, not less.

"It was a little surprising for us as we were heavily for years pushing to the outpatient market as everybody's talked about and now we're finding that the aging population is starting to overwhelm people's perspectives of how many beds are needed and we're actually having to try to catch up on that," Heywood said.

Advancing technology

M&A also affords organizations an opportunity to adopt or improve digital health solutions.

For both Banos and Heywood, that technology-forward mindset post-merger starts with the EHR and EMR platforms.

"We've really invested into 'let's utilize as much of our EMR as we can to the full extent,'" Banos said. "If there's something out there that Epic rolls out, we want to be one of the first ones to do it and we try doing that all the time. That, when we go and take over a practice or dialysis center or a freestanding emergency room, really has helped us because they see that they don't have the dollars to invest in that."

When you're using a platform like Epic which can have multiple versions, you want to optimize it by having any future partners on there as fast as possible and on the same maximized version, Heywood stated.

Then, organizations can replace add-ons with upgrades by Epic when it rolls them out to ensure they're sticking to one platform as much as possible, making it easier to keep up to date.

"What we want to do is get our platforms tight and we want to get them right and we want to keep them upgraded. The minute we have an acquisition or a partner, we want to get them on those structures," Heywood said.

Beyond the EHR and EMR platforms, Banos recognizes the value of implementing various technologies in different settings, such as AI in diagnostics and robotics for floor cleaning.

"We're trying to use everything we can to help," Banos said. "While it might be a little expensive now, we know in the long run it's going to be a better solution going forward."

Whether it's quality, prices, or spending, consolidation doesn't often enhance the value of care delivery.

As more and more hospitals and health systems pursue integration, the potential negative impact on patients shouldn't be overlooked.

Consolidation seldom leads to better quality of care delivered or reduced prices, according to a study published in the Journal of the American College of Surgeons. Organizations must weigh the strategic and financial benefits of mergers and acquisitions against the consequences for the communities they serve.

The study's authors reviewed 37 studies published from 2000 to 2024 that met the criteria of including horizontal or vertical consolidation, and reporting on at least one measure of value (price, cost/spending, and quality).

Of the 26 studies that measured quality of care, 20 (77%) demonstrated no change or lower quality after integration, while only six studies showed improved quality, driven by better care management processes instead of outcomes.

Of the 14 studies measuring price changes, 13 (93%) featured increased charges, whereas 13 of the 16 studies (81%) focused on health care spending revealed higher costs or no charge.

“Proponents of health care integration have claimed it controls costs and enhances care quality,” Bhagwan Satiani, lead study author and professor of surgery emeritus at The Ohio State University Wexner Medical Center, said in a statement. “But we found that evidence is lacking that integration alone is an effective strategy for improving the value of health care delivery.”

Overall, eight of the 37 studies (22%) found that integration had a positive net impact, versus 20 studies (54%) which showed a negative net impact.

“These findings provide an opportunity to better define value with a focus on benefiting patients while balancing the financial stability of the health care industry,” Satiani said. “Quality improvement in health care cannot be achieved by mergers and acquisitions alone.”

A study examines the differences in margins and commercial prices between critical access hospitals and other acute care hospitals.

Among hospitals facing financial pressures, critical access hospitals (CAHs) are particularly in a precarious position.

Compared to other acute care hospitals, CAHs have lower operating margins, with the gap even wider for independent and system-affiliated CAHs, according to a study published in JAMA Health Forum.

Researchers from Brown University and Johns Hopkins University obtained operating margins and hospital prices on over 4,000 hospitals in each dataset, limited to general medical and surgical hospitals and excluding speciality hospitals from 2016 to 2022.

The data revealed that the average operating margin was 2.6% for independent CAHs and 7% for system-affiliated CAHs, versus 11.4% for independent non-CAHs and 16.6% for system-affiliated non-CAHs.

Operating margins for system-affiliated CAHs were 63% higher than for independent CAHs, highlighting the discrepancy in negotiating leverage with commercial insurers, the authors stated.

The one area CAHs had favorable operating margins was in Medicare, where CAHs were around 2% while non-CAHs were approximately -4%. All hospitals, however, had similar Medicaid operating margins at around -18%.

In terms of standardized inpatient commercial prices, system-affiliated CAHs were 7.1% higher than independent CAHs, whereas independent non-CAHs were 15.4% lower and system-affiliated non-CAHs were 13.2% higher.

Though system affiliation can improve the financial health of hospitals and especially give CAHs some relief, it has shown to also result in higher prices for patients.

"Policymakers interested in improving patient access to hospital care in rural areas should consider the impact of consolidation for both CAHs and non-CAHs, such as whether the increased commercial prices associated with system affiliation correspondingly lead to improved and sustained patient access to care," the authors wrote.

Providers and retailers alike had to navigate a restructuring process due to industry headwinds and challenges.

Healthcare organizations across all sectors were plagued by financial pressures this year, resulting in restructuring and bankruptcy for many.

Here are four notable bankruptcy cases CEOs followed in 2024:

Steward Health Care

Arguably the most visible bankruptcy in the industry this year was Steward Health Care’s, which saw the Dallas-based health system file for chapter 11 and put all 31 of its U.S. hospitals up for sale.

The company racked up debt from missed rent and vendor payments, putting a spotlight on the potential impacts of private equity-backed organizations.

While Steward has managed to sell some of its facilities, it has also struggled to divest many others, partly due to disagreements with its landlord, Medical Properties Trust.

Cano Health

The Miami-based primary care chain was another provider who dealt with its own financial turmoil.

Cano filed for bankruptcy and entered into a restructuring support agreement in February before emerging in the summer as a private company.

By exiting underperforming regions and refocusing on its Florida market, Cano said it was on track to hit its goal of $290 million in annualized cost reductions by the end of the year.

Rite Aid

Almost a year after filing for bankruptcy, Rite Aid also completed its financial restructuring in September with new leadership in place and a significant amount of debt cleared.

Matt Schroeder, who was most recently CFO since 2019, took the reins as CEO while the company slashed $2 billion of its debt and received approximately $2.5 billion in exit financing.

The Philadelphia-based drugstore retailer was forced to close hundreds of brick-and-mortar stores in the wake of its bankruptcy.

CareMax

Steward’s troubles didn’t just result in the health system’s bankruptcy, but contributed to CareMax entering restructuring, according to the Miami-based provider.

In announcing its bankruptcy, the company highlighted its relationship with Steward, which filed a motion to reject its contract with CareMax when it entered chapter 11.

Additionally, CareMax was hit by rising costs from leases, increasing interest rates, changes in regulatory reimbursement, inflation, escalating labor and operational costs, and high levels of medical utilization following the pandemic.