5 Hospital Merger and Acquisition Moves Kicking Off 2020

Louisiana to see major provider consolidation in 2020

The provider market in Louisiana is slated to experience a lot more consolidation in 2020. In December 2019, one of the state’s largest non-profit health systems Lafayette General Health signed a letter of intent to merge with Jennings American Legion Hospital.

According to the announcement, the two organizations are exploring a merger deal in which Lafayette General Health would assume management and operations of Jennings American Legion Hospital through a multi-year lease of the facility and its clinics starting as soon as Oct. 1, 2020.

But that is not the only deal on Lafayette General Health’s plate this year. The health system also anticipates closing a major merger deal with Ochsner Health System by the spring of 2020. The proposed merger would create the largest and most comprehensive health system in the Gulf South, according to the September 2019 announcement.

Both hospital merger and acquisition deals would strengthen existing partnerships. The organizations intend for the more formal affiliations to strengthen what the provider organizations already do together and protect the organizations in an increasingly complex and rapidly changing market.

In total, the deals would create a 34-hospital system in Louisiana.

Hospital closure in Philadelphia prompts residency sale debate

Hahnemann University Hospital in Philadelphia closed its doors for good in September 2019 following a period of financial difficulties. However, the hospital’s closure is still making news because of its medical residency program.

After the 496-bed teaching hospital declared bankruptcy and shut its doors after 170 years of operation, it sold its 550 Medicare-funded residency slots to other provider organizations in the area for $55 million.

The sale sparked outrage from federal officials who in a recent lawsuit called the sale of federally funded residencies in bankruptcy court illegal. Other critics of the sale also feared that allowing the sale to go through would set a bad precedent that would encourage private equity firms to close in on financially distressed hospitals.

The court ruled in favor of CMS, granting a stay pending a hearing and ruling on its appeal.

But the situation has raised an important issue that will be settled by an appeals court in 2020: Can hospitals buy and sell their Medicare-funded residency slots like other assets?

Community Health Systems sells Virginia hospitals

Effective Jan. 1, 2020, Tennessee-based Community Health Systems no longer operates in Virginia. The leading operator of general acute care operators in communities across the country announced just before the new year that it sold three Virginia hospitals – 300-bed Southside Regional Medical Center in Petersburg, 105-bed Southampton Memorial Hospital in Franklin, and 80-bed Southern Virginia Regional Medical Center in Emporia – to Bon Secours Mercy Health.

The sale of the three hospitals was part of the planned divestitures discussed during Community Health Systems’ third-quarter earnings call last year, which also revealed new financial hardships for the large publicly traded hospital company. During the quarter, revenue fell by almost six percent year over year to $3.25 billion.

Divestitures are part of Community Health System’s financial turnaround plan, which seems to be paying off. In the third quarter of 2019, the company reported a net loss of $17 million, which was significantly less than the $325 million loss experienced at the same time last year.

The healthcare industry can expect more of these hospital divestitures as large hospital operators reconsider their growth from the past decade. Hospital profitability continues to struggle as expenses increase while volumes decrease, and large companies like Community Health Systems are adapting to this trend by swapping out their desire to grow their footprint for a more refined strategy based around specific types of facilities and markets.

4 Chicago hospitals exploring a single system

Four hospitals on the South Side of Chicago are in talks to combine. According to a recent report from Crain’s Chicago Business, Advocate Trinity Hospital, Mercy Hospital & Medical Center, South Shore Hospital, and St. Bernard Hospital are exploring a single system structure to help boost declining financial performance.

All four of the hospitals are operating in the red, the report stated. The hospitals are feeling the pressure from a nationwide problem: volumes are declining as both labor and non-labor expenses significantly increase.

A merger could help the hospitals improve financial performance while ensuring the facilities stay open for patients by leveraging economies of scale, enhancing bargaining power with payers, and removing redundant expenses and services, the report explained.

While still in the early stages, the hospitals are considering a merger that would create a single system under one leadership team that includes some combination of inpatient, outpatient, emergency care, and skilled nursing.

The hospitals have not officially commented on whether the merger talks are occurring.

Piedmont Healthcare acquires 9 urgent care centers

Georgia-based Piedmont Healthcare recently entered a joint venture with WellStreet Urgent Care to acquire nine urgent care centers, according to local news sources.

The acquisitions will bring Piedmont Healthcare’s total number of urgent care facilities to 26 and make the health system’s urgent care system the largest in the state based on the number of patients it manages, Georgia Health News reported.

Urgent care centers have taken the industry by storm. The Urgent Care Association (UCA) has historically reported industry growth of approximately 400 to 500 new centers per year, which has been driven not only by consumer behavior but also hospital strategies and interest in the urgent care value proposition.

Hospitals are increasingly buying urgent care centers to provide more convenient, affordable locations for patients and bolster their bottom lines. The centers are also complementing population health management strategies, UCA reported.

As patients continue to act more like consumers, the healthcare industry will likely see more hospitals and health systems acquiring urgent care centers to bring value to their patients and prevent them from seeking care beyond their reach.