An HFMA Healthcare Financial Pulse Resource
Many in the industry are predicting 2010 will be a banner year in terms of merger and acquisition (M&A) activity. Be ready, however: Although healthcare partnerships have flourished in the past, the forthcoming partnerships are not your parent’s-generation M&As.
Today’s interest in mergers is broad-based and includes many layers, notes Kit Kamholz, partner and leader of the M&A practice at Kaufman Hall, an independent healthcare consulting firm that provides integrated strategic, capital, and financial advisory services.
“It’s no longer simply the traditional community hospital looking for a larger health system,” he says. “Regional health systems are talking to regional health systems; the for-profits are looking at all types of organizations; new market entrants are seeking acquisition opportunities; and the faith-based organizations are talking among themselves about potential consolidation.”
What’s driving this change? . . . The “double whammy” of the recent capital markets crisis and the economic downturn has diminished the financial strength of many healthcare organizations, leaving them with large capital requirements that can’t be met.
“Typically, organizations would decide they needed a partnership to survive or to access the capital required to meet the needs of their markets,” notes Mark Grube, the partner leading Kaufman Hall’s strategic advisory practice.
These factors are still at play, he says, but other drivers, reflecting reform-accelerated changes, have now also gained significant importance. These include:
Physician issues, from recruitment to back-office support
IT needs, particularly those that drive quality
Branding
Service line development
Healthcare organizations are looking for solid footing as reform takes shape in Washington. “Uncertainty in the environment tends to push people toward pursuing a less risky path, so there is more eagerness not to go it alone,” Grube says.
These days, even hospitals in strong positions are looking at partnership opportunities. “It’s not just being driven by crisis,” he says. “It’s being driven more by strategy.”
Many organizations observe that the competencies needed to be successful in the future are very different, and they don’t see a way to get there without the support of a more sophisticated partner that offers the benefits of a larger-scale organization.
As an example, partnering with another organization can be an effective strategy for attracting and retaining the right talent to drive improvements in quality of care, manage changing technology needs, and address increased regulatory pressures. It can also improve negotiating position with insurers as the payment system undergoes reform.
“With the changed landscape, smaller organizations may find it difficult to chart the type of course that’s going to be required going forward,” Grube says. “Demands are increasing both in regard to financial capital and intellectual capital. It’s difficult for a typical community hospital with seven or eight lead executives to acquire the depth and breadth of knowledge to make all of the changes that will be necessary.”