Private Equity and Non-Profit Hospitals: Strange Bedfellows or Saving Grace?

An article this week in Becker’s Hospital Review discusses a relatively new twist in the hospital/hospital system merger and acquisition arena  – the involvement of private equity firms. Several examples are listed:

• Acquisition of Caritas Christi Health System by Steward Health System, an entity of Cerberus Capital Management
• Purchase of Detroit Medical Center by Vanguard Health Systems, owned by Blackstone Group
• Catholic system Ascension Health formed a funding venture with Oak Hill Capital Partners

The articles briefly discusses the pros and cons for private equity involvement.

Source: McLaughlin J. Private equity and non-profit hospitals: strange bedfellows or saving grace. Becker’s Hospital Review, Mar. 26, 2013. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/private-equity-and-non-profit-hospitals-strange-bedfellows-or-saving-grace.html

Related resources:

Page L. Private equity funds are changing the face of U.S. hospitals. Becker’s Hospital Review, May 2, 2011. http://www.beckershospitalreview.com/hospital-transactions-and-valuation/private-equity-funds-are-changing-the-face-of-us-hospitals.html

Saint Mary’s plans joint venture with private equity company. Catholic Health World, Apr. 15, 2011. http://www.chausa.org/Saint_Marys_plans_joint_venture_with_private_equity_company.aspx

Creswell J and Abelson. A giant hospital chain is blazing a profit trail [re: HCA now owned by 3 private equity firms]. New York Times, Aug. 14, 2012. http://www.nytimes.com/2012/08/15/business/hca-giant-hospital-chain-creates-a-windfall-for-private-equity.html?

Denning S. HCA: the unsustainable private equity bubble in US health care. Forbes, Aug. 15, 2012. http://www.forbes.com/sites/stevedenning/2012/08/15/private-equity-wont-fix-health-care-either/

Wechsler P. HCA plans biggest U.S. private equity IPO at $4.28 billion. Bloomberg.com, Feb. 22, 2011. http://www.bloomberg.com/news/2011-02-22/hca-offering-as-much-as-4-28-billion-in-shares-to-public.html

Evans M. Limited potential: private-equity deals come with conditions. Modern Healthcare, Jan. 28, 2012. http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=5&cad=rja&ved=0CFMQFjAE&url=http%3A%2F%2Fwww.modernhealthcare.com%2Farticle%2F20120128%2FMAGAZINE%2F301289974&ei=V_VVUZjCIqWYyAGqj4H4DA&usg=AFQjCNFZJy9RjBAyFmhnac6Xi5OTRCVZVw&bvm=bv.44442042,d.aWc

Becker S and others. Private equity investing in healthcare — 13 hot and 4 cold areas. McGuireWoods LLP, Aug. 4, 2011. http://www.mcguirewoods.com/news-resources/publications/health_care/private-equity-investing-healthcare.pdf

Shinkman R. For hospitals, M&A market means more private equity, payer partnerships. FierceHealthCare, Jan. 29, 2013. http://www.fiercehealthfinance.com/story/hospitals-ma-market-means-more-private-equity-payer-partnerships/2013-01-29

Private equity firms: could they help save your hospital? REDW LLC, Sept. 11, 2011. https://www.redw.com/publication_full_story.php?Page=publications&Blog_Ref=213&UserRef=1&CategoryName=Healthcare+Publications 

Vaughan J. Private equity investment in health care services. Health Affairs, Sept. 2008. http://content.healthaffairs.org/content/27/5/1389.abstract

Posted by AHA Resource Center, (312) 422-2050, rc@aha.org

Trend Watch: Physician Practice Acquisitions, 2012-2013

Are hospitals actively acquiring physician practices, and if so, which specialties? That’s the question the first in a planned annual survey by Jackson Healthcare sets out to answer. Here are the key findings:

• Over half of reporting hospitals had acquired or were planning to acquire physician practices.
• Family practice and other primary care, including internal medicine and obstetrics/gynecology specialties, were of  top interest.
• Cardiology and general surgery specialties also ranked relatively high in acquisition interest.
• The top reason for a hospital acquiring a medical practice was physicians approaching the hospital, seeking to sell their practices. Hospitals bought them primarily to build/maintain a competitive advantage or as part of a physician recruitment strategy.

Source: Trend watch: physician practice acquisitions; tracking which physician practices hospitals are acquiring. Jackson Healthcare, 2013. http://www.jacksonhealthcare.com/media-room/surveys/trend-watch-physician-practice-acquisitions-2012-2013.aspx

Related resources:

Halley MD. Owning medical practices: best practices for sustainable results. AHA Press, 2011. More details for purchasing book: http://ams.aha.org/EWEB/DynamicPage.aspx?WebCode=ProdDetailAdd&ivd_prc_prd_key=48a43cee-9de8-49e8-b0fc-b3445003ff3b

Lister E and Sagin T. Creating the hospital group practice: the advantages of employing or affiliating with physicians. Health Administration Press, 2009. More details for purchasing book: http://www.ache.org/pubs/redesign/productcatalog.cfm?PC=WWW1-2135

Posted by AHA Resource Center, (312) 422-2050, rc@aha.org

Healthcare Mergers & Acquistions – 2012 Trend Data

Irving Levin Associates has released summary data on health care M&A activity during 2012. Deal volume for hospitals showed an uptick of 2.2% over 2011 — 94 deals, up from 92 in 2011. However, dollar value of the deals declined  77.2%, from $8.3 billion in 2011 to $1.9 billion in 2012. In the health services market overall, the number of deals was up 8.9%, but total dollar value was down 31.5%.

Significant growth in deal dollar value was seen for the home health/hospice, physician medical groups, behavioral health, and managed care sectors. For the entire health sector – both technology [biotech, ehealth, devices, and pharma] and health services – the deal dollars shrank 38% while deal volume grew 5.9%.

Source: Health care M&A spending falls nearly 40% in 2012, lowest year on record since 2003, according to Irving Levin Associates, Inc. Business Wire, Jan. 21, 2013. http://www.businesswire.com/news/home/20130121005788/en/Health-Care-MA-Spending-Falls-40-2012.

Posted by AHA Resource Center, (312) 422-2050, rc@aha.org

Mergers and acquisitions: 92 transactions in 2011

Modern Healthcare publishes an annual list of hospital merger and acquisition transactions that identifies the buyer, seller, name and size of hospitals involved, and the $ cost.  Also included is a trend chart showing year-by-year counts of the total number of deals and of facilities involved.  The number of transactions has stayed fairly steady over the past 5 or 6 years, although the number of facilities involved jumps around more from year to year.

Source: Barr, P.  Dealing them in: annual M&A report shows industry changes drive another year of growth.  Modern Healthcare;42(5):S1-S7.  Click here to access the magazine: http://www.modernhealthcare.com/  Posted by AHA Resource Center, (312) 422-2050, rc@aha.org

Health information management implications of a merger

This is a practice brief from the American Health Information Management Association on the topic of how to start to frame the issues associated with a health facility merger.  Of particular interest are issues related to health information management, in the different cases of mergers and acquisitions resulting in a single location, in multiple locations under a single license, or in multiple locations with multiple licenses.  The article as posted on the web has an accompanying checklist.

Source: Identifying issues in facility and provider mergers and acquisitions.  Journal of AHIMA;83(2):50-53, Feb. 2012.  Full text click here: http://library.ahima.org/xpedio/idcplg?IdcService=GET_HIGHLIGHT_INFO&QueryText=xPublishSite+%3csubstring%3e+%60BoK%60+%3cAND%3e+%28xSource+%3csubstring%3e+%60AHIMA+Practice+Brief%60+%3cNOT%3e+xSource+%3csubstring%3e+%60AHIMA+Practice+Brief+attachment%60%29&SortField=xPubDate&SortOrder=Desc&dDocName=bok1_049354&HighlightType=HtmlHighlight&dWebExtension=hcsp   

Checklist here: http://library.ahima.org/xpedio/groups/public/documents/ahima/bok1_049352.hcsp?dDocName=bok1_049352   Posted by AHA Resource Center, (312) 422-2050, rc@aha.org

 

Mergers: what are the trends over past decade?

In 2010, there were 89 merger and acquisition deals involving 227 hospitals, according to an annual survey published by Modern Healthcare magazine.  This represents a slight increase in the number of deals from 2009, but a large increase in the number of facilities involved.  Details about each of the 2010 deals is given in this article, as well as a table showing counts for each year 2001 to 2010 of deals and number of facilities involved. 

Source: Galloro, V.  Picking up speed.  Modern Healthcare;41(3):22-26, 28-31, Jan. 17, 2010.

Why this academic medical center merger failed

In the 1990s, two academic medical centers located in New York City entered into merger talks.  Phase I, a merger of the New York University and Mount Sinai medical schools, never got off the ground.  Phase II, a merger of the university teaching hospitals, did result in the 1998 creation of Mount Sinai NYU Health, but this union lasted only three years.  The history of the merger negotiations, the positions of the key stakeholders, the brief operating experience, and the ultimate decision to dissolve the hospital merger are reported in these articles.

Sources:  Kastor, J.A.  Failure of the merger of the Mount Sinai and New York University Hospitals and medical schools: part 1; and, part 2.  Academic Medicine;85(12):1823-1832; also, commentaries: Davis, K.  What happens when a combined entity is lesser than the sum of its parts?  and, Grossman, R.I., and Berne, R.  Less is better: lessons from the New York University-Mount Sinai merger.  Academic Medicine;85(12):1815-1818, Dec. 2010.