Healthcare Business News

CHS-HMA deal hikes pressure on smaller systems, hospitals

By Beth Kutscher
Posted: January 27, 2014 - 3:45 pm ET

(Story updated at 3:58 p.m. ET.)

Community Health Systems completed its $3.9 billion acquisition of Health Management Associates, raising the stakes for hospitals and smaller systems across the U.S. that can't achieve the same economies of scale.

The Franklin, Tenn.-based group is now the largest chain in the country by hospital count, unseating HCA. The deal, coming on the heels of other big plays such as Tenet Healthcare Corp.'s acquisition of Vanguard Health Systems and the merger of Trinity Health and Catholic Health East, speaks to the growth of the hospital mega-system and the mounting pressures on smaller systems and standalone facilities that have to compete against well-capitalized Goliaths.

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Shares of Naples, Fla.-based HMA stopped trading Monday on the New York Stock Exchange. For each share held, investors received $10.50 in cash as well as 0.06942 shares of Community stock. The deal also included a contingent value right of $1 a share that will be paid depending on the outcome of certain legal and regulatory matters.

The companies finished the transaction just days after the Federal Trade Commission signed off on a settlement that requires Community to divest two hospitals and outpatient assets in Alabama and South Carolina.

The takeover received overwhelming support from shareholders this month, despite earlier discontent from investors, who had voted less than six months earlier to replace the entire HMA board.

As Community works to digest its purchase, providers that compete with Community's hospitals will be looking at how they can achieve the similar efficiencies without the size. Some, which might need capital and balance sheet help, will likely look for a buyer or merger partner, said Jeff Hoffman, senior partner at Kurt Salmon, a consulting firm. But others may pursue non-ownership affiliations to build the same skill set necessary for population health management.

Small hospitals may not be able to compete on balance sheet efficiencies, but they have opportunities to compete on physician alignment and integration. “The real significant improvement is improving the cost of clinical care,” he said. “They really need to ask what is their clinical integration and value strategy for the future.”

Community has already announced a number of promotions among its top leadership team to prepare for the HMA integration. Larry Cash will serve as president of financial services in addition to holding his CFO position. David Miller, formerly president of Division 1 operations, will expand his role to oversee all six divisions and the integration of HMA's hospitals as chief operating officer. And Dr. Lynn Simon, chief quality officer, will be president of clinical services.

HMA adds 71 hospitals to Community's 133.

Follow Beth Kutscher on Twitter: @MHbkutscher

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