Content area
Full Text
Healthcare reform will result in more consolidation and integration among hospitals, reversing a recent trend in which hospitals tended to stay away from such transactions.
Regardless of the ultimate fate of the Affordable Care Act, healthcare reform is becoming a powerful catalyst for consolidation and integration in the hospital industry. We are seeing a significant number of mergers between hospital systems and cases of integration with physicians and other providers.
Consolidation activity has picked up considerably compared with the overall trend for the hospital industry in recent years. In the mid-1990s, the external threat of managed care had prompted many transactions." According to one source, the industry saw a peak in the growth in healthcare mergers in 1996, with 768 hospital facilities involved in 285 transactions, followed by a decline until 2004, when the growth rate began to gradually rise again (Ettinger, DA., and Berenbaum, S. P., Health Care Mergers and Acquisitions: The Antitrust Perspective, Bureau of National Affairs, 1996, updated annually). The decline in transactions was dramatic, dropping to between 3o and 50 per year. The transactions that were occurring were largely due to microeconomic issues facing smaller hospitals and some larger systems (usually loss of access to capital and the need to defend against competition) .b
According to American Hospital Association data, the overall number of hospitals declined by about 3.5 percent from 5,194 in 1995 to 5,008 in 3011 (Chartbook: Trends Affecting Hospitals and Health Systems, www.aha.org/research/ reports/tw/chartbook, American Hospital Directory). Yet the number of hospitals affiliated with systems has been increasing. In 1999, only 2,524 of the hospitals in the United States were part of systems, whereas by 2009, that number had increased to 2,921.
Today, approximately 80 percent of the roughly 4,500 hospitals are operated by not-for-profit organizations and local governments, while for-profit companies operate about 20 percent of hospitals (Fast Facts on US Hospital, American Hospital Association, updated Jan. 3, 2012, www.aha.org/research/rc/stat-studies/ fast -facts, shtml). For an industry representing 5 percent of U.S. gross domestic product, the number of independent hospitals represents a staggering amount of fragmentation.
The few companies involved in transactions, which average only between one and two hospitals per transaction, indicate a highly fragmented industry. Among the top 10 companies in the hospital industry, each one...