Upswing in hospital M&As

Over the next few years, 20% of hospitals could seek out mergers, according to a recent report in the New York Times. Reasons: The need to adapt to changes triggered by the Affordable Care Act; to increase clout dealing with insurance companies; and economies of scale.

Booz & Company, a consulting firm, predicts that 1,000 of the nation’s roughly 5,000 hospitals could seek out mergers in the next five to seven years.  “There’s immense logic for them to become large super-regional systems, even some national systems,” David W. Johnson, a managing director for BMO Capital Markets, told the Times.

Watch out: Another Booz study reveals that most hospital M&As are financial flops. In the two years after an acquisition, less than half (41%) of the acquired hospitals outperformed their market, and 18% went from positive margins to negative margins. One of the implications here is that too much is being paid for acquisitions, so the focus should be on an accurate and realistic valuation. The BVR/AHLA Guide to Healthcare Valuation is the premier resource for healthcare administrators, attorneys, and appraisers involved in any healthcare valuation.

Is your hospital poised for a merger or acquisition? Share your thoughts about it here.