Since 2007, hospital mergers and acquisitions have picked up every year, and activity increased even more after the 2010 Patient Protection and Affordable Care Act. But how are these transactions actually panning out? Are hospitals gaining efficiencies? Do certain acquirers fare better than others?
Acquisitions by national chains and systems like St. Louis-based Ascension Health or Franklin, Tenn.-based Community Health Systems apparently result in more profitable individual hospitals, according to a report from the Deloitte Center for Health Solutions. Deloitte analysts came to this conclusion and explored other M&A questions by looking at the financial performance of hospitals that were acquired in 2007 or 2008 — a total of 101 acute-care hospital transactions.
Here are four of Deloitte's main findings from its analysis.
1. National systems appear to be more successful in gaining financial value from M&A deals compared with local and regional chains. In the deals that occurred in 2007, hospitals acquired by a national chain increased their margins by 72 percent from 2007 to 2010. Comparatively, hospitals acquired by a local or regional system improved their margins by 11 percent during the same time period. In the 2008 deals, hospitals acquired by a national chain also had a higher EBITDA margin (10.3 percent) compared with those acquired by local systems (5.2 percent).
2. Regional health system acquisitions still hold value, though. Although many of the hospitals acquired by national systems in 2007 and 2008 had higher EBITDA margins and more financial stability, local transactions still greatly improved hospitals' financial standing, according to the study.
For example, in 2008, the median EBITDA margin for a hospital acquired by a local/regional chain was -1.8 percent. However, as mentioned in the previous point, that jumped to 5.2 percent. So while national chains generally lifted profit margins of hospitals higher than regional ones, many local deals resulted in positive financial and operational movement.
"This isn't to suggest that regional/local deals…were not taking a step toward improving the hospital's viability," Deloitte analysts wrote in a release. "Rather, the data shows the improvement was more dramatic for those involving a national chain."
3. Successful hospital acquirers, national and regional, showed strong post-deal expense management. M&A deals usually occur to increase economies of scale and centralize expenses. Deloitte's study looked at median operating expenses per adjusted patient days at acquired hospitals between at 2007 and 2008, and analysts found that total operating expenses varied widely among cohorts. However, the most successful deals resulted from low growth in expenses.
"Many [acquirers] appear to have successfully managed expenses post-deal; this may become more difficult in future transactions due to regulatory changes," the authors wrote.
4. National chain acquisitions generally gained higher volumes than regional ones. Although the healthcare system is transitioning from fee-for-service to value-based care, volumes are still a widely watched financial metric.
Deloitte's study showed that hospitals acquired by national chains generally accrued higher increases in patient volumes than those acquired by regional systems. For example, patient volume increased 58 percent, on average, at hospitals acquired by national systems in 2007 compared with 16 percent at hospitals acquired by regional systems.
Acquisitions by national chains and systems like St. Louis-based Ascension Health or Franklin, Tenn.-based Community Health Systems apparently result in more profitable individual hospitals, according to a report from the Deloitte Center for Health Solutions. Deloitte analysts came to this conclusion and explored other M&A questions by looking at the financial performance of hospitals that were acquired in 2007 or 2008 — a total of 101 acute-care hospital transactions.
Here are four of Deloitte's main findings from its analysis.
1. National systems appear to be more successful in gaining financial value from M&A deals compared with local and regional chains. In the deals that occurred in 2007, hospitals acquired by a national chain increased their margins by 72 percent from 2007 to 2010. Comparatively, hospitals acquired by a local or regional system improved their margins by 11 percent during the same time period. In the 2008 deals, hospitals acquired by a national chain also had a higher EBITDA margin (10.3 percent) compared with those acquired by local systems (5.2 percent).
2. Regional health system acquisitions still hold value, though. Although many of the hospitals acquired by national systems in 2007 and 2008 had higher EBITDA margins and more financial stability, local transactions still greatly improved hospitals' financial standing, according to the study.
For example, in 2008, the median EBITDA margin for a hospital acquired by a local/regional chain was -1.8 percent. However, as mentioned in the previous point, that jumped to 5.2 percent. So while national chains generally lifted profit margins of hospitals higher than regional ones, many local deals resulted in positive financial and operational movement.
"This isn't to suggest that regional/local deals…were not taking a step toward improving the hospital's viability," Deloitte analysts wrote in a release. "Rather, the data shows the improvement was more dramatic for those involving a national chain."
3. Successful hospital acquirers, national and regional, showed strong post-deal expense management. M&A deals usually occur to increase economies of scale and centralize expenses. Deloitte's study looked at median operating expenses per adjusted patient days at acquired hospitals between at 2007 and 2008, and analysts found that total operating expenses varied widely among cohorts. However, the most successful deals resulted from low growth in expenses.
"Many [acquirers] appear to have successfully managed expenses post-deal; this may become more difficult in future transactions due to regulatory changes," the authors wrote.
4. National chain acquisitions generally gained higher volumes than regional ones. Although the healthcare system is transitioning from fee-for-service to value-based care, volumes are still a widely watched financial metric.
Deloitte's study showed that hospitals acquired by national chains generally accrued higher increases in patient volumes than those acquired by regional systems. For example, patient volume increased 58 percent, on average, at hospitals acquired by national systems in 2007 compared with 16 percent at hospitals acquired by regional systems.
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