Are Healthcare Merger, Acquisitions Key to Maintaining Access to Care?

With more hospitals under financial pressure, healthcare mergers and acquisitions may help to keep doors open and maintain access to care, among other benefits, according to a new analysis.

The analysis prepared by Kaufman, Hall & Associates, LLC, and released by the American Hospital Association (AHA) found that 40 percent of hospitals that underwent an acquisition between 2015 and 2019 were financially challenged or distressed prior to the transaction, meaning they had operating margins at or below -2.0 percent for at least two of the three years prior to the acquisition.

About 20 percent of the hospitals analyzed said financial distress was a key driver for the merger or acquisition. Of these hospitals, more than a third had also declared bankruptcy. Over 80 percent were saved from bankruptcy and remain operational today, the analysis stated.

By improving their financial standing, the hospitals were able to maintain access to care in their communities. Nearly 4 in 10 acquired hospitals were even able to expand the services they offered to patients. The most commonly added services included endo optical colonoscopy (11 percent of acquired hospitals), diagnostic radiology (11 percent), emergency department services (10 percent), CT scanner (10 percent), MRI (10 percent), and ultrasound (10 percent).

Additionally, the analysis stated that patients treated at hospitals acquired by academic medical centers or large health systems also gained more access to tertiary and quaternary services.

Healthcare mergers and acquisitions, or at least partnerships between hospitals, may be the answer to maintaining access to care, the analysis indicated.

“Although not necessarily the right choice for all hospitals, partnerships, mergers, and acquisitions have been an essential tool for adapting to a changing environment. Hospitals will need continued flexibility to seek partners as they work to recover from the pandemic’s impacts on their staff, operations, and financial health,” the authors of the analysis wrote.

About half of hospitals had negative margins at the start of 2021, up from just 25 percent of hospitals prior to the pandemic, the authors explained citing their previous research.

But hospitals are also facing increased financial pressure from other factors, such as an aging population that relies more on government-funded insurance, which pays hospitals less than total costs of care for their beneficiaries. Additionally, move to downside risk, the general shift of volume from inpatient to outpatient settings, and healthcare legislation and regulation are also impacting the financial standing of hospitals and health systems, and largely for the worse.

Authors of the analysis cited data from the Cecil G. Sheps Center for Health Services Research at the University of North Carolina, which showed 138 rural hospital closures since 2010, with a new record of 19 closures last year.

Hospitals need to scale their operations to survive and maintain access to care in the current healthcare environment, the analysis suggested.

“Scale improves access to capital markets and the cost of capital needed for critical investments in care delivery and population health,” the authors wrote.

Partnerships, whether through a formal merger or acquisition or not, can also enhance the patient experience and improve quality of care by giving hospitals access to the necessary capital and resources for such investments, the analysis stated.

However, research has questioned the benefits of increased consolidation in healthcare. One recent study published in Health Affairs found that key service lines, including maternal and surgical care, were eliminated at some rural hospitals following an acquisition.

Meanwhile, there is a growing body of literature demonstrating the impact healthcare mergers and acquisitions have had on hospital prices and patient out-of-pocket costs.

Commenting on the analysis, Rick Pollack, AHA president and CEO, said, “America’s hospitals and health systems – and the 6 million women and men who work there – are cornerstones of their communities, and that has never been more apparent than during the ongoing public health emergency.”

“Some hospitals have found that partnerships, mergers and acquisitions were a necessary response to a changing environment in their community and have allowed them to maintain the vital services they provide each and every day to patients and communities,” Pollack continued in the statement.