Mergers and acquisitions (M&A) have for quite some time been a piece of the social insurance scene. The indicated objectives incorporate effectiveness, better access, enhanced quality and lower cost prompting upgraded productivity. The vulnerability in the social insurance condition and repayment has driven healthcare frameworks to seek after M&A to safeguard their focused position and to pick up value influence with safety net providers. For other people, it might mean getting to populace healthcare ability, healthcare designs or relationship with a prominent healthcare framework.
The Advisory Board reports that the volume of M&A’s almost doubled from 50 in 2009 to 89 in 2012. Indeed, hospital transactions as a whole (including mergers, acquisitions, and joint ventures) have climbed from 66 in 2010 and 95 in 2014 to 112 in 2015, an 18% increase from 2014. Kaufman, Hall & Associates reported 102 deals in 2016 and reported an 8% increase in the first quarter of 2017 compared to the same period in 2016. It is projected that one in five hospitals will pursue a merger in the next five years. The majority of mergers occur in hospitals with less than $500 million in annual revenue and in not-for-profits, which represent about 75 % of all hospitals. Forty-one percent of 250 senior healthcare executives surveyed expect that M&A will represent their growth strategy in the coming year.
Benefits
To be sure, hospitals certainly are not in the business of losing money unless there were demonstrated benefits to the acquirer as well as the acquired. The main reasons advanced include: benefit of the larger scale, lower cost of capital and improved care due to the standardization of processes and patient care
In fact, one study shows a 2.5% reduction in annual operating expense per admission at the acquired hospital. However, the authors of this report point out that the expense per admission did not go down in absolute terms but the increase was 2.5% lower than comparable hospitals. The report also failed to find any statistically significant improvement in outcomes. Another study by Dranove and Lindrooth looked at two independent hospitals merging into one health system between 1986 and 1996. They saw a benefit of a 14% reduction only if the two merged hospitals operated using one license rather than two separate licenses.
Market forces have altered the size of physician practices. While the solo or 2-10 physician practices are decreasing, large groups approaching 50 physicians are on the rise. An advantage for merging physician groups is that the ‘vertical’ integration of employed physician and hospitals is often associated with higher prices charged to commercial insurers.