Hospitals Engage in Mergers and Acquisitions to Stay Open

Berkeley Research Group (BRG) has released a study, Hospital Mergers and Acquisitions-Studying Successful Outcomes, in which BRG identified 127 hospital leaders involved with transactions in the past five years. At the time of the deals, each of these executives was in a C-suite role, clinical leadership, or serving as a senior executive. The results showed that 33 of the executives played a pivotal part in the transaction, from initial exploration to integration. Of the 33 who helped lead their transaction, 15 were from C-suite executive, operations, or financial roles; and 18 came from clinical leadership roles. There were 14 with hospitals being acquired, 10 with acquiring hospitals, and nine with merging entities.

hospitals
Study Author

The 33 execs represented a variety of transactions:

  • 57% involved a large hospital acquiring a smaller one;
  • 19% involved two larger (250+ beds) hospitals merging;
  • 71% involved at least one not-for-profit hospital; and
  • 66% involved at least one rural hospital.

When asked as to what was driving the merger or acquisition, the most frequent answer from hospital executives was to increase the organization’s odds of survival. Some execs said merging with another hospital wouldn’t have been considered if they didn’t think closure was likely, according to the BRG research.

BRG said that the questions probed for insights into the main drivers of the transaction, timing of consolidation, process, and outcome. BRG studied the hospitals in early 2020, prior to the coronavirus pandemic’s major impact. However, BRG said that it “provides a window into themes that remain key to a favorable integration of two or more hospitals.”

What Did Executives Seek in M&A Transactions Involving Hospitals?

BRG asked the hospital execs about the top two things most sought in the transaction. Their top responses included the following:

  • Ability to survive (43%);
  • Market share/volume increase of the hospitals (34%);
  • Capital (better access to or lower cost) (28%);
  • Improved operating margin/stronger financial performance (24%);
  • Health plan contract negotiation improvements (18%);
  • Mission preservation (11%);
  • Better value-based position (11%);
  • Clinical quality improvements (11%);
  • Fewer administrative burdens (6%);
  • Joint purchasing/access to GPO (4%);
  • Improved attractiveness to investors (2%); and
  • More service lines (2%).

What Were the Most Cited High-Level Recommendations?

BRG said that the most successful mergers of hospitals that it reviewed bring together leaders and operations quickly but thoughtfully around a shared vision. The five most cited high-level recommendations were as follows:

  • Consolidate leadership and have it report to one board of directors;
  • Create one unified vision and speak to issues of mission and culture frankly;
  • Consolidate most services based on the entities involved and the strengths of the departments, rather than by a standard protocol;
  • Completely combine electronic medical records (EMR)/IT and purchasing as quickly as possible; resist completely centralized managed care services; and don’t wait to use or diminish the role of human resources (HR) during and after the transaction; and
  • Provide clear and consistent communication with providers and other staff to discuss any dissatisfaction or negative feelings because it can diminish the success of transaction.

In addition, executives and clinical leaders repeatedly emphasized the importance of creating and implementing a plan for addressing staff and patient satisfaction risks early in the process to promote the benefits of the change, while at the same time openly acknowledging the downsides and responding to any possible concerns.

C-suite leaders who responded to the survey also noted that “choosing the correct organization” on the other side of the deal was vital, citing the value of “vetting multiple partners” as an important first step.

One executive mentioned that geographic alignment can be important. However, frequently what’s more important are synergies in mission, size, and services. Clinical leaders said that “staying the course and maintaining vision” were important at different points in the process, particularly when two unique organizations were merging as one.

BRG concluded that “[w]hile there are clear keys to success, we also come away from this study finding that there is no single blueprint for consolidating services.”