Since the beginning of the COVID-19 pandemic, the trend of independent hospitals and small community health systems joining larger systems via full-asset mergers has slowed when compared to the last 10 years overall.
Editor's Note: This article appears on ECG’s website and was originally published by the American Health Law Association.
While the number of announced transactions for 2023 (55) is up from 2022’s recent historic low (52), it still trails the nearly 100 transactions announced each year from 2012 to 2019.
Despite a decrease in the total number of transactions, the average size of each deal has notably increased in recent years, indicating that the types of organizations being acquired by larger systems are not the small, independent hospitals of 10-plus years ago. Rather, faced with sky-high labor costs and competitive pressure stemming from nontraditional organizations investing in the healthcare space, midsize community systems—which previously had large enough balance sheets to weather economic uncertainty—are now pursuing partnerships with larger systems as their strategic direction of choice¹.
The average size of the hospitals engaging in transactions has grown in recent years, with the average revenue of transacting facilities exceeding $400 million. As shown in figure 1, this surpasses the prepandemic historic high of $296 million². For large, well-financed institutions, the current market represents a buyer’s opportunity as midsize systems and the remaining independent hospitals express significant concern about taking on the future alone.
FIGURE 1: Revenue per Selling Hospital, 2017–2023 (in millions)
There are various benefits smaller systems hope to realize in joining larger systems, including:
- Infrastructure to help manage a shifting payer environment.
- Expertise in developing ambulatory care sites.
- Access to capital at affordable rates.
- Support to address rising labor costs.
- Increased market access.
- The ability for programmatic and physician growth.
However, giving up community-based governance to join a system is not a sacrifice any entity makes without much deliberation and contemplation. To support this decision-making, leaders typically compare the contrasting futures of remaining independent versus joining a larger system. Detailed below are the key success factors to be considered by boards and executives as they determine which strategic direction to pursue. Click here to continue>>
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