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2017 Hospital Merger Activity Likely to Beat 102 Deals in 2016

The industry has seen 87 health system and hospital merger deals so far in 2017 and that number is likely to exceed the 102 deals announced in 2016, an analysis uncovered.

Hospital mergers

Source: Thinkstock

By Jacqueline LaPointe

- Healthcare organizations engaged in 87 hospital merger and partnership transaction so far in 2017, a recent Kaufman Hall analysis showed.

The most recent data revealed that 29 hospital merger and partnership deals were announced in the third quarter of 2017. The number of transactions is down from 31 deals announced in the second quarter.

Despite a slight dip, researchers projected that the number of health system and hospital mergers in 2017 is likely to exceed the 102 transactions completed in the previous year.

Health system and hospital mergers among large healthcare organizations are driving the fast pace. Organizations with about $1 billion or more in revenue announced eight merger and partnership deals as of the third quarter of 2017.

The number of transactions among large organizations so far in 2017 has already doubled the four such transactions announced the previous year.

“Transactions among larger and like-sized organizations are rising as health systems across the country look to build scale and new capabilities for an uncertain healthcare environment,” stated Anu Singh, Managing Director of Kaufman Hall. “Large, highly rated systems are coming together to form large-scale, multi-region, and multi-business unit organizations.”

For example, leaders at UNC Health Care and Carolinas HealthCare announced in the third quarter of 2017 that their organizations anticipate entering a joint operating agreement. The partnership aims to mesh clinical, medical, and research resources from both health systems.

The largest Catholic health system, Ascension, also announced its intentions to acquire Illinois-based Presence Health, a 12-hospital system.

If the health system merger is finalized, Presence Health would become part of AMITA Health, a joint venture between Alexian Brothers Health System under Ascension and Adventist Midwest Health, which is a system owned by Adventist Health System.

Singh explained that health system and hospital mergers between two large-sized organizations is not necessarily driven by financial reasons. Rather, the large organizations are seeking to improve their strategic standing in their markets.

“Organizations are pursuing partnerships and collaborations in order to remain competitive and strengthen their market offerings, so that they can continue serving the healthcare needs of their communities,” Singh explained.

Large organizations can achieve strategic market goals through official healthcare mergers. However, Singh noted that healthcare leaders are increasingly turning to more creative affiliations and partnerships that respond to new challenges in the industry, such as value-based care.

Provider collaboratives are an alternative to an official health system or hospital merger. Deloitte defined a provider collaborative as “a group of independent yet aligned hospitals or health systems that form a legal partnership in pursuit of common goals and initiatives.”

The collaborative allows hospitals and health systems to remain independent while leveraging the resources owned by other provider organizations in their market. Members also access scale-related benefits, such as supply chain savings from group purchasing arrangements.

Value-based care is also pushing hospitals and health systems to form both formal and creative partnerships, Singh told RevCycleIntelligence.com in April 2017.

“[O]rganizations are seeking new capabilities for a value-based, consumer-oriented health system, such as data analytics, care coordination across the continuum, retail or urgent care centers, and telehealth, among others,” he said.

Additionally, the new Kaufman Hall analysis showed that for- and non-profit healthcare organizations are similarly seeking health system and hospital mergers. Nineteen of the transactions announced in the third quarter of 2017 were between non-profit organizations and another eight involved for-profit entities.

Two of the announced health system and hospital mergers also involved joint non-profit and for-profit transactions.

Other health system and hospital merger and partnerships in the third quarter of 2017 included three transactions involving academic medical centers and for-profit organizations, fiving deals among religious-related acquirer and eight with non-profit, publicly owned hospitals.

New York, Pennsylvania, and Illinois saw the most hospital merger and partnership activity, with each experiencing three transaction announcements in the third quarter.

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