Hospital M&A: “Good or Bad?”

The healthcare market has seen ongoing consolidation the past 15 years, and we will continue to see mergers and acquisitions within the healthcare landscape. It is not the intent of this blog to take a position on M&A being “good or bad” but rather to provoke thoughts from the reader on where things are heading in healthcare.

https://www.axios.com/rep-jim-banks-hospital-consolidation-bill-c08e1a68-8729-412e-a1f8-9ea5717130da.html

MRG has provided services surrounding audits for acquisitions for many years.  We have seen markets shift from multiple stand-alone hospitals competing in the same geographical area to one or two health systems taking over the market through hospital acquisitions or facility closures.  MRG has also witnessed doctors go from wanting to be in private practice to being acquired by hospitals and hired as an employee of health systems.

The reality is that the market seems to continue down this path of consolidation.  We are now beginning to witness mega health systems spanning multiple states, some to a national scale.  The question becomes: is this fair competition for stand-alone hospitals or physicians who want to maintain their autonomy?

The attached article indicates that the government may have concerns with monopolies forming from M&A activity and creating unfair leverage for larger health systems.  I think one could make a list of positives and negatives for both sides of this argument.  Will M&A activity create higher quality of care and minimize cost to the consumer?  Or will lack of  regional competition drive prices up and limit access for healthcare consumers? These are the questions we urge our readers to consider.

MRG Newsletter January 2019

Navigating the Hospital Closure Crisis

At least 90 rural hospitals across the United States have closed since 2010, with an additional 600 that are vulnerable to financial crisis and potential closure. Trends show that a majority of these closures have occurred in southern states, with Texas, Tennessee, and Georgia leading with the most closures in the last decade, and in states that have not expanded Medicaid. Critical access hospitals and for-profit health organizations were especially at risk, making up 40% of the closures already.
Rural hospital closures typically occur when hospitals have negative margins and are unable to cover fixed costs. Two notable changes in rural demographics hint at a loss of revenue:
  1. The populations these hospitals serve are older, poorer, and have more complicated and chronic health issues than those in urban communities. They are also less likely to be insured, leading to a rise in uncompensated care.
  2. People are moving from rural communities to urban living, meaning rural hospitals generally have fewer beds filled at a time to cover costs.
In addition to losing the existing patient population and compensation for care, rural hospitals also lack funds to repair facilities and update aging clinical equipment. Their outdated assets make them less marketable to attract new patients, who instead go to larger health systems that offer the newest in medical technology and a wider range of outpatient and specialty care.
So what can at-risk hospitals do to mitigate financial loss and potential closure? Gaining an understanding of existing assets and facilities could be a good place to start. The process consists of:
  • an Inventory of what items and facilities the hospital already has
  • an Assessment of what condition they’re in and what those items are worth.
This is especially useful if an independent hospital is looking for a larger health system to acquire the facility.
If there are no exiting plans for consolidation, rural hospitals can make themselves more marketable to prospective buyers and health systems by targeting limited funds to the most critical updates or towards specific services that other health systems may lack in their network and the surrounding area. At-risk rural hospitals may also be purchased and transformed into outpatient facilities. Using the asset evaluation, hospitals can determine which departments are no longer vital to an outpatient setting, liquidate the items that will not be needed, and use the return towards improving the remaining clinical and outreach services for incoming patients.
Even though many rural hospitals are still at-risk, we now know the signs and trends that ultimately lead to closure. In addressing asset management and taking proactive approaches to finance and consolidation, these hospitals can open up more possibilities to sustain services and provide for their communities. To learn more about asset appraisal, go to www.go2mrg.com.
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MRG Projects:
  • I&A service for KY Health System
  • Remote audit for MI Health System
  • I&A of multiple practices for MI Health System
  • Resale Service Cleanout Project for MI Health System
  • Resale Service for OH Health System
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MRG Appraisal of the Month:
1qty 2003 GE Lightspeed 16 slice CT Scanner
Fair Market Value: $102,500.00

 

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MRG Fun Facts:
Cleveland physicist Dayton C. Miller at the Case School of Applied Science developed his own x-ray machine and completed the first x-ray scan of an entire human body – his own – in 1896. This technology drives everything from MRIs to CAT scans today.