Trey Crabb, president of Health Strategy Partners, a healthcare strategic advisory firm in Nashville, makes seven points on how health systems' strategies to acquire hospitals have changed.
1. More for-profit acquisitions. For-profits stayed out of the market for two or three years since the financial crisis started in 2008. At the height of the recession, when struggling non-profit hospitals asked to be acquired, the for-profits said, "Talk to us later." Now the for-profits are back in the game. "They have staffed up development teams and they are definitely on the acquisition prowl," Mr. Crabb says. He predicts that six to 10 hospital companies will lead consolidation of hospitals.
2. Acquisitions focused on existing market. In previous acquisition booms, systems were acquiring "dots on a map," Mr. Crabb says. "They were not necessarily focusing on a particular market." This time around, however, "hospital companies are growing inside their markets in a very integrated fashion." Systems now want to focus on acquisitions in the existing market, because these systems are easier to manage. Also, "when you are familiar with a region, there will be fewer surprises," he says. "You know about the relationship between physicians and hospitals in the area and about hidden liabilities, such as environmental issues."
3. Entering a market by buying a big player. When acquiring systems have access to a large source of funding, such as a private equity fund, they can enter new markets because they can gain substantial business within that market. This is what happened when Vanguard bought Detroit Medical Center for $1.5 billion last year. It captured substantial patient revenue, EBITDA, market share and bed size in the Detroit area.
4. New focus on ancillary services. "The new world order is to be important to your population," Mr. Crabb says. Systems are building out ancillary services like ambulatory surgery centers, imaging, long-term care and rehabilitation facilities within their own market. "They don't necessarily have to acquire these services," he says. "They could grow them organically or partner with independent providers."
5. Non-profits never stopped acquisitions. "Non-profit hospitals have never been as sophisticated as in the past few years," Mr. Crabb says. While the for-profits took a break from acquisitions in the past few years, large non-profit systems like Trinity Health, Christus and Ascension Health continued to acquire more hospitals.
6. Many more holding out on ACOs. Most hospitals are still deciding whether they want to build or join an ACO. But they are still preparing for ACOs because even if they don't join one, they believe that integrated care and other concepts behind an ACO will be important in any future changes in reimbursement.
7. The possibility of accepting risk. As Medicare gets ready for shared savings arrangements in ACOs, some health plans are offering the possibility of more potent forms of risk, such as capitation. Many hospital administrators are on the fence about this. "A lot of these guys were in the HMO business 15 years ago and got out," Mr. Crabb says. "They didn't have a good run with it." Now, however, "they believe they're smarter. There are better performance measurements than there used to be. There is a more holistic attitude toward healthcare. Now they are looking firmly at patient needs." They are asking questions like, "What does our population in this market need?"
Learn more about Health Strategy Partners.
1. More for-profit acquisitions. For-profits stayed out of the market for two or three years since the financial crisis started in 2008. At the height of the recession, when struggling non-profit hospitals asked to be acquired, the for-profits said, "Talk to us later." Now the for-profits are back in the game. "They have staffed up development teams and they are definitely on the acquisition prowl," Mr. Crabb says. He predicts that six to 10 hospital companies will lead consolidation of hospitals.
2. Acquisitions focused on existing market. In previous acquisition booms, systems were acquiring "dots on a map," Mr. Crabb says. "They were not necessarily focusing on a particular market." This time around, however, "hospital companies are growing inside their markets in a very integrated fashion." Systems now want to focus on acquisitions in the existing market, because these systems are easier to manage. Also, "when you are familiar with a region, there will be fewer surprises," he says. "You know about the relationship between physicians and hospitals in the area and about hidden liabilities, such as environmental issues."
3. Entering a market by buying a big player. When acquiring systems have access to a large source of funding, such as a private equity fund, they can enter new markets because they can gain substantial business within that market. This is what happened when Vanguard bought Detroit Medical Center for $1.5 billion last year. It captured substantial patient revenue, EBITDA, market share and bed size in the Detroit area.
4. New focus on ancillary services. "The new world order is to be important to your population," Mr. Crabb says. Systems are building out ancillary services like ambulatory surgery centers, imaging, long-term care and rehabilitation facilities within their own market. "They don't necessarily have to acquire these services," he says. "They could grow them organically or partner with independent providers."
5. Non-profits never stopped acquisitions. "Non-profit hospitals have never been as sophisticated as in the past few years," Mr. Crabb says. While the for-profits took a break from acquisitions in the past few years, large non-profit systems like Trinity Health, Christus and Ascension Health continued to acquire more hospitals.
6. Many more holding out on ACOs. Most hospitals are still deciding whether they want to build or join an ACO. But they are still preparing for ACOs because even if they don't join one, they believe that integrated care and other concepts behind an ACO will be important in any future changes in reimbursement.
7. The possibility of accepting risk. As Medicare gets ready for shared savings arrangements in ACOs, some health plans are offering the possibility of more potent forms of risk, such as capitation. Many hospital administrators are on the fence about this. "A lot of these guys were in the HMO business 15 years ago and got out," Mr. Crabb says. "They didn't have a good run with it." Now, however, "they believe they're smarter. There are better performance measurements than there used to be. There is a more holistic attitude toward healthcare. Now they are looking firmly at patient needs." They are asking questions like, "What does our population in this market need?"
Learn more about Health Strategy Partners.