Size mat­ters

National chains have best ef­fect on ac­quired hos­pi­tals, sur­vey says

Modern Healthcare - - THE WEEK IN HEALTHCARE - Beth Kutscher

Mul­ti­state chains may do a bet­ter job than lo­cal or re­gional sys­tems at im­prov­ing the fi­nan­cial per­for­mance of the hos­pi­tals they buy. A Deloitte anal­y­sis of 77% of hos­pi­tal deals forged in 2007 and 2008 con­sid­ered the per­for­mance of ac­quired hos­pi­tals through 2010. National chains take bet­ter ad­van­tage of work­force, sup­ply chain and payer syn­er­gies, and they’re also more ef­fec­tive at in­creas­ing vol­ume, ac­cord­ing to the anal­y­sis.

“Size and scale are more im­por­tant than they ever have been in the past,” said Si­mon Gisby, who leads the U.S. health­care prac­tice at Deloitte.

Yet the re­sults weren’t con­sis­tent across the board. For in­stance, hos­pi­tals ac­quired by re­gional sys­tems in 2008 had the fastest rate of change, im­prov­ing their me­dian mar­gins (earn­ings be­fore in­ter­est, taxes, de­pre­ci­a­tion and amor­ti­za­tion, or EBITDA) by 388% in the first two years af­ter the takeover—from -1.8% to 5.2%.

For that rea­son, Gisby noted, it’s not as easy as say­ing that national sys­tems are bet­ter ac­quir­ers than re­gional ones.

“There are a lot of lo­cal fac­tors that go into it as well,” he said, cit­ing the part­ner’s cul­tural fit and abil­ity to ex­pand and dif­fer­en­ti­ate ser­vices and at­tract physi­cians.

How­ever, tar­gets of national buy­ers still out­per­formed those ac­quired by re­gional ones in 2008, with their EBITDA mar­gins im­prov­ing from 3.9% to 10.3%. Vol­ume dur­ing that time pe­riod also in­creased 51.4% for national tar­gets com­pared with 5.3% for re­gional ones.

The sur­vey looked at a to­tal of 101 hos­pi­tal ac­qui­si­tions, about half of which (50) were a not-for-profit sys­tem ac­quir­ing a not-for­profit fa­cil­ity.

The re­main­der was evenly split (with 17 each) be­tween a for-profit ac­quir­ing a not­for-profit hos­pi­tal, a for-profit ac­quir­ing a for-profit and a not-for-profit ac­quir­ing a for-profit en­tity.

As a group, the ac­quired hos­pi­tals were per­form­ing be­low their peers dur­ing the year they were bought out—and while they did catch up, they were still lan­guish­ing be­low the com­par­i­son group even two to three years af­ter the ac­qui­si­tion.

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