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Government hospitals have been increasingly active in mergers and acquisitions in recent years, particularly as regional markets have further consolidated and investor-owned systems’ development streaks have waned. For some government health systems, this means growing their footprint in the region they serve. For others, it means assessing their long-term sustainability as a government-sponsored entity and seeking a private partner.

As pressures compound on the healthcare industry, including the ongoing stress of the COVID-19 pandemic recovery, elected officials and healthcare administrators will continue to weigh the advantages and drawbacks of government hospitals.

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Public hospitals have a uniquely open relationship to the communities they serve, which invites a level of transparency as they consider potential mergers and acquisitions. So what kind of M&A deal activity options are out there for public hospitals dealing with financial pressures, and how can parties navigate regulatory, financial and public opinion to get the deal done?

In this episode of Collaborative Transformation podcast series, Rex Burgdorfer, managing director at Juniper Advisory, joins McDermott Will & Emery partner Megan Rooney to discuss:

• The major trends driving public hospital M&A
• How M&A can strengthen hospitals financially and the regulatory and external challenges contributing to financial pressures
• Unique regulatory and financial challenges faced by public hospitals
• Benefits of privatization in the hospital industry
• The role public sentiment can play in public hospital transactions

Listen to the podcast. 

Overview

System hospitals tend to have more ICU beds, higher case mix indices and are more likely to be a part of physician integration networks compared to like-sized standalone hospitals. These attributes are particularly important findings during the COVID-19 pandemic, where ICU beds are at a premium; experience managing complex cases is essential; and the ability to care for patients in appropriate settings is of utmost importance.

We reached these conclusions by analyzing CMS Medicare Cost Report data, the most comprehensive set of financial and clinical data available for comparisons of U.S. hospitals. We used this data set to create regression models which can be found here. These regressions allow us to assess the impact of independence on ICU beds, CMI and ACO/CIN membership. We performed this analysis on a subset of all hospitals, namely those with 80 or fewer ICU beds. Intuitively, facilities with more than 80 ICU beds tend to be ‘hub’ facilities and there are almost no independent hospitals with greater than 80 ICU beds. Further, by excluding these ‘hub’ facilities, we review a data set where both system and standalone hospitals are well distributed and lower the

The COVID-19 pandemic has upended our nation and our healthcare delivery system. The extreme pressure being put on hospitals during this crisis will permanently change the way healthcare is sought and provided. In addition to the sweeping changes we can expect in clinical standards and care delivery models, we will also see changes in how hospitals approach partnerships. Following are seven observations on the impact the pandemic will have on the healthcare merger and acquisition market:

• We are entering a buyers’ market. Hospitals and health systems are experiencing financial strain during the pandemic. The loss of revenue from non-urgent procedures along with the increase in supply and workforce costs is dramatic. The burden is being felt most acutely by hospitals that were near or in financial distress pre-pandemic. Stressed hospitals are already seeking infusions of cash and other support to keep their doors open. In the aggregate, there will be more sellers than buyers in the market post-pandemic. As a result, sellers will need to be more flexible as the composition of transaction consideration will change. Hospitals that seek relationships with academic medical centers should also be aware of the anticipated