Over the last year or two, hospital mergers and acquisitions have been taking place at a mind-boggling pace—one health executive calls it a "feeding frenzy"—as economic forces reshape the health care market.
According to the American Hospital Association, via Modern Healthcare, there were 1,430 such transactions in 2012 and another 977 transactions in 2013. As for costs, health care transactions mounted up to $123.6 billion in 2012, and $135.3 billion in 2013. To put these numbers in perspective, remember that there are only about 5,000 acute-care hospitals in the U.S.
It's understandable that hospitals are looking for merger partners. After all, the changes called for to survive in the new hospital market are very costly. If nothing else, merging forces creates a larger capital pool from which to draw when they need to upgrade their emergency rooms, say, or pour resources into upgrading to ICD-10. There's also the pressure to form ACOs, an undertaking in which larger players have the advantage in making policy and pursuing strategies.
But running a hospital in this crazy market we've got today isn't just a matter of scale. Amassing a large health system may seem to offer protection, but there's some problems with the "too big to fail" model that aren't talked about a lot:
- While scaling up may meet needs of health insurers, who increasingly want to buy in bulk, it creates new levels of complexity for health care organizations, who have to add a massive corporate integration program to their "to do" list when they merge or acquire other facilities.
- Investing in facilities just to match the scale achieved by their competitors diverts capital away from the other projects they had in line at the time. In fact, they may never get to execute projects that they had planned for the facility—possibly very valuable ones—as the values of the organization shift with the acquisition.
- Mergers and acquisitions force corporate culture changes that might not work for the employees you have. Admittedly, this is a rough job market, so staffers are not going to walk away in droves, but some categories of employee (IT for instance) can often find another job whenever they'd like. If the corporate culture at your newly-merged facility displeases them, there are only too many other hospitals that may be thrilled to have them.
- Acquisitions by venture capital firms, while coming with a bundle of money, also come with tough expectations as to financial performance. Hospitals may have to realign everything they do to please their VC masters.
Call me old-fashioned, but I believe that the diversity local hospitals bring to the community—when things work right—has its own value. If community hospitals are controlled by an entity that's hundreds or even thousands of miles away, with potentially different objectives, I'd argue that it's virtually impossible to maintain what might have been a tight relationship with the community.
I think it's time for the feeding frenzy to slow down or stop for a while and for hospitals, even those facing financial issues, to stop and take a deep breath. If those hospitals are being run right, they serve as a valuable member of the community in which they are located. Let's hope merger fever doesn't destroy that relationship too often.