February 28, 2018
While healthcare executives have eagerly pursued hospital M&As over the past decade, hoping to create operational, strategic, and financial value, most of these deals have failed to deliver. Deloitte’s Center for Health Solutions collaborated with the Healthcare Financial Management Association (HFMA) to analyze how M&A impacts a hospital’s performance and found that M&As can drive value, but only in rare instances and with well-conceived strategic intent and thorough planning and execution.
Between 2008 and 2014, there were more than 750 hospital acquisitions or mergers. A desire to increase market share was the top driver for transactions among acquiring organizations, according to study respondents. Access to capital was executives’ second-most frequently cited driver for seeking an acquisition, while roughly a quarter of executives sought M&A to improve efficiencies. Seventy percent of survey respondents said they achieved at least some of their transaction’s projected cost structure efficiencies.
Through its analysis, Deloitte and HFMA discovered that higher operating margins did not immediately follow M&A for acquired hospitals. In fact, once the analysis took into account market and hospital characteristics, acquired hospitals, on average, experienced a post-transaction decline in operating margins, revenue, and expenses that typically lasted two years.
Deloitte and HFMA also learned that for the most part, reported quality measures at an acquired hospital were unchanged after the transaction. However, M&A had a negative impact on the top-performing hospitals: among those with the highest patient satisfaction scores (i.e., scores of 9 or 10 on a 10-point scale), an analysis revealed that scores declined slightly after an acquisition, and did not rebound until two years post-transaction.
For questions, comments or concerns, please contact Jennifer Duell Popovec