Tacoma, Wash.-based MultiCare Health System gained a broader statewide presence in July through the $425 million purchase of CHS' two-hospital Rockwood Health System in Spokane, Tanquilut said.
That kind of an acquisition by a regional not-for-profit like MultiCare gives the system greater leverage in managed-care negotiations, Tanquilut said.
And the acquired hospitals can become a good profit center over time with some investment capital for new specialty services and outpatient points of access, he said.
In fact, MultiCare plans to raise $61 million through a taxable revenue bond offering this month to improve operations in Spokane, according to a Moody's Investors Service report on the offering this month.
"You're seeing buyers willing to pay a little higher multiple for hospitals," Tanquilut said. "But if you can turn a single-digit margin into a double-digit one, you've effectively cut a 10 times multiple (for acquisition) to maybe five times pretty quickly."
The divestiture campaigns by CHS and Tenet are contributing to a very busy year for hospital merger and acquisition activity.
M&A hospital transactions in 2017 are expected to eclipse the 120 completed in 2016, said Anu Singh, managing director at healthcare financial advisory firm Kaufman, Hall & Associates.
In 2017 so far, there have been 87 announced hospital transactions, including 29 in the third quarter and 31 in the second quarter, he said.
For the most part, the buyers were acting strategically, trying to fill a geographic need and round out service lines for a regional system, rather than being motivated simply by financial concerns, such as cash flow and incremental profit, he said.
That thinking was on display during two deals announced in the third quarter: Ascension's planned acquisition of Presence Health in Chicago and a merger agreement between UNC Health Care and Carolinas HealthCare System.
The latter deal combines the academic and specialty services of 14-hospital UNC with the Carolinas system, which owns, manages or has strategic affiliation with 47 hospitals, many of which operate in rural areas, Singh said. In the deal, rural patients gain easier access to the clinical trials and subspecialties that UNC Health Care brings to the table, while Carolinas can market that brand and quality as a differentiator, he said. About 70% of North Carolina's population is located within 20 miles of one of the partners' hospitals—a plus for coverage under managed-care contracts.
Ascension's plans to buy 10-hospital Presence strengthen the foothold that Ascension already has in Chicago through its Alexian Brothers Health System joint venture with Adventist Midwest Health.
Ascension said it would acquire Presence and operate it as part of the joint venture, called Amita Health, in Chicago's western and northwestern suburbs.
Dallas-based Tenet, the nation's third-largest investor-owned hospital company by number of hospitals, is adding to the hospital consolidation enveloping the Chicago area.
This month Trinity Health's Loyola Medicine in Chicago agreed to buy Tenet's MacNeal Hospital in suburban Berwyn, Ill. And Tenet said it was looking to sell its other three hospitals in the Chicago area to exit the market entirely.
Singh said he expects those three hospitals won't be sold as a package to not-for-profit systems, as the big regional systems take what makes the most sense geographically and strategically for them.
