Is a battle brewing over hospital system mergers and acquisitions post COVID-19?
The acquirers, according to a May 15, 2020 Law360 analysis, will be the big, healthy, financially sound hospital systems that scooped up the bulk of federal hospital bailouts from the CARES Act. The acquired will be the smaller hospital systems that are the collateral damage from a pandemic that left them with little financial margins of error, a fraction of federal aid, and a growing sense of desperation.
25% of Rural Hospitals May Fail
The financial shock of delayed elective surgeries hit some hospitals, especially geographically remote hospitals already operating under thin margins, so hard that their survival may be in doubt without the aid of a big angel partner in the form of mergers and acquisitions (M&A). The big will get bigger.
In April, consulting firm Guidehouse LLP reported, “a quarter of U.S. rural hospitals are at a high risk of closing unless their financial situations improve.”
The price of survival for these small players will be serving the needs of their acquirer who will likely insist on efficiencies and reorganizing the logistics of where and when orthopedic procedures, among others, are delivered. Surgeons and patients will travel further and longer for services.
“There will be this regional rationalization of services based upon the expense of the service and the sophistication of the service,” Rivkin Radler LLP partner Bob Iseman told Law360.
Multiple lawyers also told Law360 that the pandemic may well encourage vertical integration in which hospitals with robust resources snap up different types of providers to offer primary care and other outpatient services.
The consolidation of health systems is not new, of course. Private payers and Centers for Medicare and Medicaid Services (CMS) have been directing patients to lower-cost, non-hospital settings and tying payments to quality of care for years. Hospitals responded by snapping up clinics, physician practices, and financially stressed hospitals to capture patient revenue and “The Bundle.”
But any anticipated reshuffling of the hospital deckchairs will be evaluated with a skeptical eye by anti-trust enforcers, politicians, and the broader business community which still foots the bill for healthcare costs of their employees.
Financial Carnage
First the financial damage.
The American Hospital Association told Congress that hospitals would lose about $200 billion from March through June, made up of $161 billion in lost revenue from the cancellation of nonemergency treatments and $37 billion in net expenses for coronavirus care. A report from accounting and consulting firm Crowe LLP estimated that hospitals nationally have recently been losing $1.44 billion per day because of declining patient volume.
