Buying in bulk.
That's what 1998 hospital merger and acquisition activity was all about. While there were fewer transactions last year, more hospitals changed hands than in 1997.
Transactions decreased almost 9% to 198 deals, but the number of hospitals involved in those deals rose almost 10% to 687, according to MODERN HEALTHCARE's fifth annual tally of hospital consolidations.
In 1997, 217 deals involved 627 hospitals. 1996 was the record year for both the most deals and the number of hospitals involved in the transactions-235 deals affecting 768 hospitals.
MODERN HEALTHCARE's annual listing includes mergers, acquisitions, joint ventures, long-term leases and other partnerships in which there was a change in control or an equity stake in a hospital changed hands. The list includes deals announced, pending or completed in 1998. Besides systems and acute-care hospital deals, the list also includes psychiatric and long-term acute-care hospitals.
The list duplicates some entries from last year's list because it includes deals announced in 1997 but not consummated until 1998. However, the list does not include management contracts or simple affiliations, such as hospitals that have joined networks. It also doesn't count previously announced deals that flopped before they were completed.
If deal terms aren't specified in the state-by-state listings, they were undisclosed.
The number of hospitals involved in consolidations last year accounted for almost 14% of the country's 5,058 nonfederal community hospitals.
Some of 1998's high-volume deals included:
* The pending merger of Lutheran Health Systems, Fargo, N.D., and Samaritan Health System, Phoenix. The deal will create a new system with 32 hospitals in 14 states.
* The creation of 31-hospital Marian Health System, Tulsa, Okla.
* The pending merger of two giant Catholic systems in Texas: 15-hospital Sisters of Charity Health Care System, Houston, and 12-hospital Incarnate Word Health System, San Antonio.
By far the largest deal on the list is the pending merger of St. Louis-based Daughters of Charity National Health System with Ann Arbor, Mich.-based Sisters of St. Joseph Health System. If a merger occurs, it would create the country's largest Catholic healthcare system, with 64 hospitals and nearly $8 billion in annual revenues.
These high-volume deals are among the 11 corporate transactions on this year's list, which involve large for-profit hospital chains or multistate not-for-profit or Catholic healthcare systems.
Of those deals, six involved the merger of not-for-profit or Catholic systems, involving 199 hospitals.
"The trend is the nonprofit systems are consolidating," says Stephen Monroe, a partner at New Canaan, Conn.-based Irving Levin Associates. Monroe's firm also tracks hospital merger
and acquisition activity.
The mergers among systems explains why more hospitals were affected through fewer deals, Monroe says.
Activity by the nation's largest for-profit hospital companies-Nashville-based Columbia/HCA Healthcare Corp. and Santa Barbara, Calif.-based Tenet Healthcare Corp.-was marked by two high-profile deals.
* Columbia sold 21 of its hospitals to a consortium of not-for-profit buyers.
* Tenet paid $345 million for eight Philadelphia-area hospitals that were part of the Chapter 11 bankruptcy filing by Pittsburgh-based Allegheny Health, Education and Research Foundation.
The 21-hospital selloff by Columbia accounted for the vast majority of the 25 "reverse conversions"-the sale of for-profit hospitals to not-for-profit buyers-that occurred last year.
On the flip side, 4%, or 29, of the hospitals involved in deals underwent for-profit conversions-the acquisition of not-for-profit hospitals by for-profit companies or the signing of long-term leases by a not-for-profit hospital and a for-profit company.
That's a drop of 42% compared with 1997, when 8%, or 50 hospitals, changed tax status to for-profit. In 1996, 63 of 768 hospitals converted to for-profit status.