In 2011, there was an 11% increase in the $205.6 billion healthcare merger, acquisition and takeover market compared to 2010. That’s more hospital mergers and acquisitions that any time in the last decade.
Driven in large part by the momentous changes healthcare reform is bringing to the already competitive healthcare atmosphere; mergers are of growing interest to hospitals and physician groups looking to increase quality outcomes, reduce costs, and acquire resources.
Mergers are seen as a way to improve health organizations’ financial performance while securing their future in the marketplace.
This uptick in mergers will continue in 2012 as there is increased pressure on squeezing costs as health providers struggle with shrinking reimbursements. Hospitals and physician groups are bracing for the looming financial consequences of federal healthcare reform and mergers are a potential avenue to stay solvent and promote any health organization's core mission – patient care.
Leverage, leverage, leverage. Though not as important as location in medical real estate, leverage is one of the greatest benefits from merging. When merging with larger healthcare entities hospitals and physician groups can increase their say when dealing with insurers, payers and suppliers. It has much to do with consumer demand. Payers want to be able to provide consumers with broader choices and larger clinics are naturally sought after first. As a result of increase in size, more opportunities for partnerships, affiliations and joint ventures can come.
Reduced costs are another large potential benefit to be gained from merging. When hospitals or physician groups combine, using their new found size as leverage, they can negotiate better terms such as volume discounts from suppliers due to expected higher usage. From a facility standpoint, especially on a scale with a large health system, mergers can provide capital needs such as renovating a struggling hospital which reduces operating costs and makes a once financially unstable hospital a lucrative one.
While mergers allow for the ability to take on the financial risk tied with overseeing groups of patients and simply the ability to continue providing care, even a well executed merger with all the complexity and costs involved, may not realize significant price reductions and discounts in the short term.
James Ellis, CEO, Health Care Realty Development Company, is a nationally recognized successful real estate investor and developer of medical office properties with a comprehensive knowledge of sophisticated real estate transactions, cost effective designs, and efficient property management.
Aaron Razavi is Associate Marketing Director at Health Care Realty Development.
Visit their blog at http://www.hcrealty.com/medicalrealestatedevelopment/