Various characteristics of a hospital, including its financial health, physician relationships and capital needs, are key considerations of acquirers when considering a hospital bid. However, none of these characteristics are more important to most acquirers than the hospital's market — and more specifically, if the acquisition will lead to a significant market share in a given market, says Michael A. “Trey” Crabb, III, president of Health Strategy Partners, LLC.
Changing strategies for hospital operators
"Several years ago small hospital focused companies were more than willing to consider acquisitions in new markets," says Mr. Crabb, "Today, those same hospital companies will only look at small — less than $50 million net patient revenue — hospital deals if they are in an existing market for the acquiror." According to Mr. Crabb, 5-10 years ago, a small hospital in a new market would have garnered bids from a number of hospital companies willing to pay cash, but this isn't the case today.
The reason for the shift, according to Mr. Crabb, is a change in strategy by hospital operators. Hospital companies focus on transactions that offer the highest returns, which today often means growing market share in existing markets rather than entering into new markets. Unless the hospital or system for sale has a significant market presence with payors, providers and consumers, some hospital operators believe they would be better off, in terms of return on investment, acquiring hospital and ancillary service competitors in markets where they already have a presence.
One notable exception is for-profit Vanguard Health Systems' acquisition of eight-hospital Detroit Medical Center, which served for years as a safety-net health system for many Detroit residents. This deal, which included $1.5 billion in debt and unfunded pension obligations and capital commitments, however, provided a large-enough market share to Vanguard to move the deal forward.
Hospital buyers harder to come by?
What this means for many small, independent hospitals is that finding an interested buyer may prove more difficult than in the past. The largest hospital chains are often uninterested unless they already own a facility in the market.
Before any hospital proceeds with a sale, it should strategically assess all of its options. Affiliations or clinical program partnerships with non-profit systems and joint venture options are some alternatives that exist for facilities. Hospitals should determine what their needs are (i.e., debt assumption, access to capital for facility improvements or electronic medical records or physician recruitment and other improvement activities) and then assess how each type of transaction addresses these needs, says Mr. Crabb.
A new generation of hospital companies
Perhaps as a result of the changing strategy of the largest hospital operators, a new generation of hospital companies have entered the hospital sector that are interested in acquiring small hospitals. These companies often are able to offer cash for facilities, which is then used to fund health foundations – giving them perhaps an edge over non-profits, who are usually not willing to pay cash, says Mr. Crabb.
"There is a special opportunity right now to be the next LifePoint, HMA or CHS," says Mr. Crabb.
Non-profits getting more aggressive
If a hospital determines a sale is not its preferred transaction, a joint-venture, affiliation or other agreement with a non-profit system are the other likely options.
"The stronger, better-rated non-profit systems are more aggressive than they've ever been," says Mr. Crabb.
In one such show of this, Duke University Health System and LifePoint announced at the end of January they would partner through a 50-50 joint venture to acquire and operate community hospitals throughout North Carolina. In its first planned deal, the joint venture would acquire Maria Parham Medical Center in Henderson, N.C., in a 80-percent (Duke/Lifepoint JV)/20-percent (Maria Parham) arrangement.
"There will be many more opportunities for health systems to get together to create these kinds of joint ventures," says Mr. Crabb.
Learn more about Health Strategy Partners.
Changing strategies for hospital operators
"Several years ago small hospital focused companies were more than willing to consider acquisitions in new markets," says Mr. Crabb, "Today, those same hospital companies will only look at small — less than $50 million net patient revenue — hospital deals if they are in an existing market for the acquiror." According to Mr. Crabb, 5-10 years ago, a small hospital in a new market would have garnered bids from a number of hospital companies willing to pay cash, but this isn't the case today.
The reason for the shift, according to Mr. Crabb, is a change in strategy by hospital operators. Hospital companies focus on transactions that offer the highest returns, which today often means growing market share in existing markets rather than entering into new markets. Unless the hospital or system for sale has a significant market presence with payors, providers and consumers, some hospital operators believe they would be better off, in terms of return on investment, acquiring hospital and ancillary service competitors in markets where they already have a presence.
One notable exception is for-profit Vanguard Health Systems' acquisition of eight-hospital Detroit Medical Center, which served for years as a safety-net health system for many Detroit residents. This deal, which included $1.5 billion in debt and unfunded pension obligations and capital commitments, however, provided a large-enough market share to Vanguard to move the deal forward.
Hospital buyers harder to come by?
What this means for many small, independent hospitals is that finding an interested buyer may prove more difficult than in the past. The largest hospital chains are often uninterested unless they already own a facility in the market.
Before any hospital proceeds with a sale, it should strategically assess all of its options. Affiliations or clinical program partnerships with non-profit systems and joint venture options are some alternatives that exist for facilities. Hospitals should determine what their needs are (i.e., debt assumption, access to capital for facility improvements or electronic medical records or physician recruitment and other improvement activities) and then assess how each type of transaction addresses these needs, says Mr. Crabb.
A new generation of hospital companies
Perhaps as a result of the changing strategy of the largest hospital operators, a new generation of hospital companies have entered the hospital sector that are interested in acquiring small hospitals. These companies often are able to offer cash for facilities, which is then used to fund health foundations – giving them perhaps an edge over non-profits, who are usually not willing to pay cash, says Mr. Crabb.
"There is a special opportunity right now to be the next LifePoint, HMA or CHS," says Mr. Crabb.
Non-profits getting more aggressive
If a hospital determines a sale is not its preferred transaction, a joint-venture, affiliation or other agreement with a non-profit system are the other likely options.
"The stronger, better-rated non-profit systems are more aggressive than they've ever been," says Mr. Crabb.
In one such show of this, Duke University Health System and LifePoint announced at the end of January they would partner through a 50-50 joint venture to acquire and operate community hospitals throughout North Carolina. In its first planned deal, the joint venture would acquire Maria Parham Medical Center in Henderson, N.C., in a 80-percent (Duke/Lifepoint JV)/20-percent (Maria Parham) arrangement.
"There will be many more opportunities for health systems to get together to create these kinds of joint ventures," says Mr. Crabb.
Learn more about Health Strategy Partners.
Various characteristics of a hospital, including its financial health, physician relationships and capital needs, are key considerations of acquirors when considering a hospital bid. However, none of these characteristics are more important to most acquirers than the hospital's market — and more specifically, if the acquisition will lead to a significant market share in a given market, says Michael A. “Trey” Crabb, III, president of Health Strategy Partners, LLC.
Changing strategies for hospital operators
"Several years ago small hospital focused companies were more than willing to consider acquisitions in new markets," says Mr. Crabb, "Today, those same hospital companies will only look at small — less than $50 million net patient revenue — hospital deals if they are in an existing market for the acquiror." According to Mr. Crabb, 5-10 years ago, a small hospital in a new market would have garnered bids from a number of hospital companies willing to pay cash, but this isn't the case today.
The reason for the shift, according to Mr. Crabb, is a change in strategy by hospital operators. Hospital companies focus on transactions that offer the highest returns, which today often means growing market share in existing markets rather than entering into new markets. Unless the hospital or system for sale has a significant market presence with payors, providers and consumers, some hospital operators believe they would be better off, in terms of return on investment, acquiring hospital and ancillary service competitors in markets where they already have a presence.
One notable exception is for-profit Vanguard Health Systems' acquisition of eight-hospital Detroit Medical Center, which served for years as a safety-net health system for many Detroit residents. This deal, which included $1.5 billion in debt and unfunded pension obligations and capital commitments, however, provided a large-enough market share to Vanguard to move the deal forward.
Hospital buyers harder to come by?
What this means for many small, independent hospitals is that finding an interested buyer may prove more difficult than in the past. The largest hospital chains are often uninterested unless they already own a facility in the market.
Before any hospital proceeds with a sale, it should strategically assess all of its options. Affiliations or clinical program partnerships with non-profit systems and joint venture options are some alternatives that exist for facilities. Hospitals should determine what their needs are (i.e., debt assumption, access to capital for facility improvements or electronic medical records or physician recruitment and other improvement activities) and then assess how each type of transaction addresses these needs, says Mr. Crabb.
A new generation of hospital companies
Perhaps as a result of the changing strategy of the largest hospital operators, a new generation of hospital companies have entered the hospital sector that are interested in acquiring small hospitals. These companies often are able to offer cash for facilities, which is then used to fund health foundations – giving them perhaps an edge over non-profits, who are usually not willing to pay cash, says Mr. Crabb.
"There is a special opportunity right now to be the next LifePoint, HMA or CHS," says Mr. Crabb.
Non-profits getting more aggressive
If a hospital determines a sale is not its preferred transaction, a joint-venture, affiliation or other agreement with a non-profit system are the other likely options.
"The stronger, better-rated non-profit systems are more aggressive than they've ever been," says Mr. Crabb.
In one such show of this, Duke University Health System and LifePoint announced at the end of January they would partner through a 50-50 joint venture to acquire and operate community hospitals throughout North Carolina. In its first planned deal, the joint venture would acquire Maria Parham Medical Center in Henderson, N.C., in a 80-percent (Duke/Lifepoint JV)/20-percent (Maria Parham) arrangement.
"There will be many more opportunities for health systems to get together to create these kinds of joint ventures," says Mr. Crabb.
Learn more about Health Strategy Partners. http://www.healthstrategypartners.com/
Changing strategies for hospital operators
"Several years ago small hospital focused companies were more than willing to consider acquisitions in new markets," says Mr. Crabb, "Today, those same hospital companies will only look at small — less than $50 million net patient revenue — hospital deals if they are in an existing market for the acquiror." According to Mr. Crabb, 5-10 years ago, a small hospital in a new market would have garnered bids from a number of hospital companies willing to pay cash, but this isn't the case today.
The reason for the shift, according to Mr. Crabb, is a change in strategy by hospital operators. Hospital companies focus on transactions that offer the highest returns, which today often means growing market share in existing markets rather than entering into new markets. Unless the hospital or system for sale has a significant market presence with payors, providers and consumers, some hospital operators believe they would be better off, in terms of return on investment, acquiring hospital and ancillary service competitors in markets where they already have a presence.
One notable exception is for-profit Vanguard Health Systems' acquisition of eight-hospital Detroit Medical Center, which served for years as a safety-net health system for many Detroit residents. This deal, which included $1.5 billion in debt and unfunded pension obligations and capital commitments, however, provided a large-enough market share to Vanguard to move the deal forward.
Hospital buyers harder to come by?
What this means for many small, independent hospitals is that finding an interested buyer may prove more difficult than in the past. The largest hospital chains are often uninterested unless they already own a facility in the market.
Before any hospital proceeds with a sale, it should strategically assess all of its options. Affiliations or clinical program partnerships with non-profit systems and joint venture options are some alternatives that exist for facilities. Hospitals should determine what their needs are (i.e., debt assumption, access to capital for facility improvements or electronic medical records or physician recruitment and other improvement activities) and then assess how each type of transaction addresses these needs, says Mr. Crabb.
A new generation of hospital companies
Perhaps as a result of the changing strategy of the largest hospital operators, a new generation of hospital companies have entered the hospital sector that are interested in acquiring small hospitals. These companies often are able to offer cash for facilities, which is then used to fund health foundations – giving them perhaps an edge over non-profits, who are usually not willing to pay cash, says Mr. Crabb.
"There is a special opportunity right now to be the next LifePoint, HMA or CHS," says Mr. Crabb.
Non-profits getting more aggressive
If a hospital determines a sale is not its preferred transaction, a joint-venture, affiliation or other agreement with a non-profit system are the other likely options.
"The stronger, better-rated non-profit systems are more aggressive than they've ever been," says Mr. Crabb.
In one such show of this, Duke University Health System and LifePoint announced at the end of January they would partner through a 50-50 joint venture to acquire and operate community hospitals throughout North Carolina. In its first planned deal, the joint venture would acquire Maria Parham Medical Center in Henderson, N.C., in a 80-percent (Duke/Lifepoint JV)/20-percent (Maria Parham) arrangement.
"There will be many more opportunities for health systems to get together to create these kinds of joint ventures," says Mr. Crabb.
Learn more about Health Strategy Partners. http://www.healthstrategypartners.com/