Not-for-profit providers—hungry for capital to make investments in their physical plants and information technology—are wondering whether they might be more successful if they could access the capital available to for-profit entities, said James Olsen, managing director in the healthcare finance group at Bank of America Merrill Lynch.
“That discussion is new to the last 18 months or two years,” he said, noting that partnerships between not-for-profit and for-profit providers have “proven to be pretty successful.”
For-profit systems, meanwhile, have been “very aggressive” in expanding around the country. “Most hospitals and systems believe they really need to be the No. 1 or No. 2 in the market,” he said.
Private equity firms—previously only interested in for-profit providers—are also increasingly “crossing the bridge” to the not-for-profit space, said Phil Pucciarelli, managing director of global healthcare investment banking at Bank of America.
Olsen called the recent joint venture between Ascension Health, St. Louis, and Oak Hill Capital Partners “unprecedented.” In addition, he noted that payers have been acquiring physician groups and health systems are now discussing buying health plans. “We are seeing a lot more out-of-the-box thinking,” he said.
Dan Moen, CEO and president of LHP Group, Plano, Texas, noted that the M&A landscape sets up well for the private equity-backed system to create joint ventures with well-performing not-for-profit hospitals that need access to capital.
A typical LHP target is either a sole community provider or a strong regional provider network with at least $100 million in annual revenue, he noted.
And he did not expect a deal slowdown in the wake of the U.S. Supreme Court's ruling on the Patient Protection and Affordable Care Act. “From our point of view, whatever happens, consolidation will continue,” he said.
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