Three Benefits of Bypassing a Merger and Choosing Looser Affiliations

November 19, 2012

Although the healthcare industry has seen a rapid increase in mergers and acquisitions among hospitals and healthcare systems in the past few years, a recent report by Irving Levin Associates indicates transactions seem to be cooling off. Experts point to the Supreme Court’s June ruling on the healthcare reform law and the recent presidential election as reasons transactions have slowed; however, loose affiliations between hospitals and health systems may also be contributing to decreased M&A activity. Below are three benefits hospitals and health systems are finding of bypassing mergers and acquisitions and forming looser alliances:

  1. Option for Financially Strong Providers to Work Together and Increase Their Patient Base: Aligning with another hospital or health system rather than merging allows providers in a position of financial strength, rather than financial distress as typically seen with mergers, to gain access to broader patient populations. Further, by affiliating with other financially strong hospitals or health systems, a provider can expand its market share and gain access to wider data sets of the community, allowing providers to target and address areas of need in a particular community and improve health services.
  2. Joint Purchasing Power: With affiliation, neither provider needs to contribute any money or assets to the collaboration. Instead of sharing capital, the hospital or health system can take advantage of the increased buying power that comes from having more beds and more patients. Affiliated providers can use joint purchasing power to help reduce costs by aligning their purchases and setting standards for products or coordinating the timing for buys.
  3. Maintain Independence and Avoid Increased Regulatory Scrutiny: Through affiliation with another hospital or health system, providers can maintain their independence by keeping their own employees and can build compatibility between medical staffs while collaborative efforts are run by operating committees. Further, affiliations typically are not subject to the more strict regulatory scrutiny mergers and acquisitions have recently seen.

Overall, hospitals and health systems not ready for the commitment of a merger or acquisition may find a looser alliance beneficial. If you have questions about other benefits or options for looser affiliations, please contact one of the authors.