With a significant drop in the number of major corporate mergers, total hospital consolidation in 1997 was off the record-setting pace of previous years.
The number of hospitals involved in merger and acquisition activity dropped 18% to 627 compared with 1996 data, according to MODERN HEALTHCARE's fourth annual list of mergers, acquisitions, joint ventures and long-term leases. Transactions in 1996 involved 768 hospitals.
1997 was marked by a sharp cutback in expansion activity by national corporate investor-owned hospital chains and multistate not-for-profit systems. There were only four corporate deals, compared with 11 corporate mergers on the 1996 list. Two of the four in 1997 involved psychiatric hospital chains.
With the fall in hospital consolidation activity, the number of hospitals changing hands accounted for 12% of the nation's 5,200 nonfederal hospitals. That's a drop from 15% of the nation's nonfederal hospitals involved in consolidation activity in 1996.
The list includes full-asset mergers, acquisitions, lease agreements, joint ventures and partnerships of various forms in which control or a significant equity stake in a hospital changed hands. In addition, many hospitals, including Catholic facilities, acquired hospitals through what religious and some academic institutions refer to as "sponsorships."
The nation's largest hospital chain, investor-owned Columbia/HCA Healthcare Corp. of Nashville, added fewer hospitals last year than at any time since MODERN HEALTHCARE began compiling its merger and acquisition list in 1994. Columbia closed on the acquisition of four U.S. hospitals, and four deals to acquire or joint venture with seven hospitals were pending.
A comparison of deals before 1994 is difficult because the American Hospital Association was the only organization tracking such activity at that time. It recorded 18 mergers in 1993.
Despite the increased volume in rhetoric during 1997 from not-for-profit advocates, only 50, or 8%, of the hospitals on this year's list were changing tax status to for-profit (taxable) from not-for-profit (tax-exempt). That's a drop of 21% from 63 conversions on the 1996 list. As a percent of the deals, conversions remained flat at 8% compared with 1996.
Last year, Columbia completed acquisitions of or joint ventures with four not-for-profit hospitals, a 76% drop from the 17 not-for-profit hospitals the company partnered with in 1996.
The 1997 list comprises 217 total deals, an 8% drop from 235 deals in 1996. It includes deals completed and pending in 1997.
The list includes some overlap because of deals announced in 1996 that didn't close until 1997 or were pending at the end of 1997. For example, Santa Barbara, Calif.-based Tenet Healthcare Corp. merged with OrNda HealthCorp of Nashville to create the nation's second-largest hospital company with 126 hospitals. By the end of the year, Tenet had 131 hospitals.
The close of the Tenet-OrNda deal late last January accounted for 20% of the hospitals involved in mergers last year. The deal also appeared on the 1996 list.
The largest not-for-profit transaction involved a major consolidation of Roman Catholic hospital systems on the East Coast.
Catholic Health East, based in Radnor, Pa., was formed through the merger of 17-hospital Eastern Mercy Health System, Radnor; six-hospital Franciscan Sisters of Allegany Health System, Tampa, Fla.; and two-hospital Sisters of Providence Health System, Holyoke, Mass.
The corporate and state-by-state listings don't include management contracts. They also don't include affiliations, such as a when a hospital joins a network. The list also excludes deals that were pending from 1995 or announced in 1996 but fell through this year.
Merger definitions and financial terms are included in the list if they were available.