Dive Brief:
- A new report from Standard & Poor's shows that merger and acquisitions in nonprofit healthcare organizations has boosted credit ratings. S&P downgraded 36 organizations through Aug. 31 of this year, two after mergers. It upgraded 29, 11 of which were caused by mergers.
- When a strong healthcare system purchases a weak one, the capital requirements of the weaker one can lead to a downgrade. But sometimes the weaker organization increases the patient volume, service lines and geographic footprint of the new system enough to make it appear like a healthy system.
- The S&P said it expects deal-making to continue at a fairly rapid pace. This may include non-merger alliances that are becoming increasingly popular in the healthcare space. Mergers and acquisitions by providers are up 13.4% over the first three quarters of 2013, according to Modern Healthcare's M&A Watch.
Dive Insight:
The S&P report also said providers are buying insurance assets like Catholic Health Partners' purchase of Kaiser Foundation Health Plan of Ohio. This is a small trend that’s becoming increasingly popular as organizations attempt to reduce costs, improve quality and improve population health. But putting the two organizations together can cause problems like the ongoing feud between UPMC and Highmark, which purchased West Penn Allegheny Health System in 2013. Insurers controlling hospital systems and vice versa can create intense competition in large markets.