Not-for-profit hospitals today seemingly have every reason to pursue mergers, as prolonged financial strain and the passage of healthcare reform legislation have created more thirst than ever for operational efficiencies, economies of scale and geographic diversity.
Not ready to tie the knot
Cash woes stall not-for-profit mergers: analysts
Yet the mergers-and-acquisitions activity between not-for-profit systems has loped along at a sleepy pace recently, as compared with what’s been happening in the for-profit sector (See story, p. 6).
Unlike the for-profits, analysts say, not-for-profit systems simply don’t have the ready access to cash and long-term financial stability to consummate deals, even in cases where the seller is literally begging for a buyer. Mount Sinai Hospital, a 1,039-bed not-for-profit in New York, pulled out of talks last week to partner with the ailing 511-bed St. Vincent’s Hospital across town after two months of intensive due diligence and direct encouragement from Gov. David Paterson.
Sanford Steever, editor of the Health Care M&A Information Service, a division of Irving Levin Associates, said the recession has paradoxically caused a decrease in the number of deals between distressed not-for-profits because credit to consummate the deals has dried up thanks to the downturn in the bond markets. “The bond markets were frozen as much as anyone else,” Steever said. “There were distressed hospitals out there, but they were less able to find buyers.”
But hospital officials and outside observers agree that the level of merger and partnership activity between not-for-profits is almost certainly destined to rise in coming years as governing boards start to come to grips with their long-term situations.
Just last week, two deals were announced. In Florida, three-hospital University Community Health, based in Tampa, and 29-hospital Adventist Health System, Winter Park, announced their executives had signed a nonbinding letter of intent to explore a merger. And in Michigan, officials at the 77-bed Gerber Memorial Health Services in Fremont signed an agreement to integrate their hospital into four-hospital Spectrum Health, Grand Rapids, pending legal approval.
Norman Stein, president and CEO of University Community Health, said executives at stand-alone not-for-profits and smaller systems should be considering all of their options today, before financial distress forces them into a decisionmaking process later.
Stein said his system had the luxury of already having a good working relationship with its potential partner; University Community Health and Adventist partnered three years ago to build a hospital under a joint venture that is slated to become the Wesley Chapel Medical Center near Tampa, in Pasco County.
But Stein said he has been hearing “a lot of chatter” from other CEOs at peer hospitals who are trying to decide how and when to approach their boards about future plans. And even if the plan is to remain independent, that has to be planned for, as the days when future independence was just an assumption may be over in many regions.
“The key thing for the CEOs out there is they have to work with the boards to start to do some strategic planning and look five and 10 years out,” Stein said. “The sooner they are able to do that, the sooner they can find their direction. If their direction is to stay independent, then they need to find their strategy to do that.”
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