Health Care

Hospital Sales, Mergers Are Active Nationally

By Vicky Janowski, posted Jul 30, 2019
News that New Hanover Regional Medical Center wants to check the market for potential buyers might have seemed sudden last week. But hospital consolidation through such deals is nothing new for the industry.
Mergers and acquisitions among hospitals have been on the upswing for years, and that pace has not slowed down recently.
For the first half of this year, there have been 46 announced mergers and acquisitions among health systems around the country – on track with last year’s 50 deals announced by mid-2018, according to consulting firm Kaufman Hall. But the value of those deals jumped to $11.3 billion during the second quarter this year, nearing the historic high seen during 2017’s second quarter when the deals were worth $12.6 billion.
That’s the landscape NHRMC and New Hanover County officials find themselves in as they consider whether to explore a potential sale and issue a request for proposals for offers on the county-owned hospital. County commissioners are slated to decide Sept. 3 whether to push forward with an RFP.
Nationally, there were more than 1,600 hospital mergers between 1998 and 2017.

Uncertainty over federal health care changes is one reason fueling the activity.

"If you look at what's going on in the health care industry ... there's a lot of change and uncertainty occurring," NHRMC President and CEO John Gizdic said. "As organizations look at some of that change, related to changes in reimbursement, the transition from sick care and fee-for-service to a more value[-based] approach -- meaning that the health care system is more financially responsible for the entire health of the patient -- as well as the capital commitments needed to not only sustain but grow health care organizations, they're finding that need for scale and purchasing power and those types of things as well as the access to capital and the cost of capital can be more attractive as part of a larger health system than you might be able to get on your own."

Facilities that have struggled financially or even faced the threat of closure in the case of a number of rural hospitals also have all been drivers for some of the deals.
NHRMC, however, comes into the situation from a financially strong standpoint, with more than $1 billion in operating revenue from the health system’s hospital, physician group and accountable care organization.
“I would strongly suspect there would be a lot of people interested,” Barak Richman, a Duke University professor of law and business administration whose focus includes health care policy.
He pointed to NHRMC’s financials and dominant market share as some of those reasons for that interest. But Richman said he does not think one of the common reason cited for hospital consolidation – achieving cost savings because of increased scale – is always the case.
“The evidence just doesn’t bear that out,” he said. “It only means that care is more expensive and less accessible.”
Because there have been so many mergers and purchases in recent years, there are a number of groups that have looked at impacts on costs in the wake of the activity, with conflicting results in some cases. Consolidation effects were the subject of a U.S. House Judiciary Committee’s antitrust subcommittee meeting earlier this year.
While consolidation in health care can lead to less fragmentation in care and less costly duplication, it also can lead to higher prices, said Martin Gaynor, professor of economics and health policy at Carnegie Mellon University.
In a presentation, he said that the average price increase was 6% from all U.S. hospital mergers between 2007 and 2011.
A study published last year in the Journal of Health Economics also looked at post-deal costs.
“On average, acquired hospitals realize cost savings between 4 and 7 percent in the years following the acquisition,” wrote researcher Matt Schmitt, from UCLA's Anderson School of Managment. The study found, through comparing hospitals that did and did not merge between 2000 and 2010, out-of-market acquisitions consistently resulted in cost savings and in-market acquisitions rarely achieved cost savings.

The pace of technological change and expanding regulatory oversight and paperwork in health care are other reasons health systems might looking to larger organizations to spread costs, said Adam Jones, UNCW Cameron School of Business regional economist.

"This trend is similar to the banking industry where the cost of regulation is driving consolidation, and scale is required," he said. "Understandably, I have heard some discussion about the potential for strong units in the hospital to be diluted or reorganized as part of a merger, but the flipside is that there is opportunity to build on partner competencies and strengthen other areas of healthcare in the region."
Ico insights



Stress Can Work For You

Ron Hewett - Academy Leadership
Burrus rob headshot 300x300

Collaborative Education In An Online Setting

Robert Burrus - Cameron School of Business - UNC-Wilmington
Natalieenglish 3301715113

Advocacy: The Heart of the Chamber

Natalie English - Wilmington Chamber of Commerce

Trending News

Live Oak Bank Sprouts A Presence In Raleigh

Jenny Callison - Jan 20, 2020

Filmwerks Expanding In Pender, Plans More Hires This Year

Christina Haley O'Neal - Jan 21, 2020

Alcami Acquires TriPharm Services

Christina Haley O'Neal - Jan 20, 2020

Bald Head Island To Receive $2.9M For Beach Restoration

Johanna Cano - Jan 21, 2020

Matt Barnett Named 2020 President Of AIA Wilmington Board

Christina Haley O'Neal - Jan 21, 2020

In The Current Issue

The Most Fitting Trends Take Shape

The top fitness trends have been named by the American College of Sports Medicine, and they can be seen in the Wilmington area....

Info Junkie: Zane S. Bennett

Zane Bennett, executive director of Plantation Village, shares his top info and tech picks....

Real Estate Runs In The Family

Real estate firms often include multiple generations working alongside each other, and examples abound in the Wilmington area....

Book On Business

The 2019 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!



2019 Health Care Heroes
August 26, 2019 Power Breakfast: A Healthy Sale?
2019 WILMA Leadership Accelerator
2019 WilmingtonBiz Expo Keynote Lunch - CEO, nCino, Pierre Naude`