The recent combination of two suburban Chicago hospitals represents the reappearance of a transaction structure that has been rarely used since the 1990s. Central DuPage Hospital and Delnor Hospital have combined via a consolidation transaction, each becoming part of a newly created parent company. This transaction is similar to many business combinations that occurred in the late-1980s and 1990s. In fact, nearly half of the 40 largest 501(c)(3) systems, and most of the large Catholic systems, resulted from these sorts of arrangements. These include such well-known companies as Advocate Health Care, Aurora Health Care, Banner Health, BJC HealthCare, Iowa Health, North Shore-Long Island Jewish Health System, Sentara Healthcare, Spectrum Health, Texas Health Resources, and UPMC.
This article explores consolidation transactions in an effort to consider the role they might play in the current merger market. Characteristics of hospital companies that entered into these kinds of combinations in the past are also reviewed, along with their corporate development subsequent to the consolidation transaction. We also describe the business objectives and social and economic circumstances that caused the parties to select this transaction form. These transactions, and their possible reappearance, are an important element in the discussion regarding the need for larger companies in the hospital industry. Their potential use should be considered in the context of the major issues surrounding industry consolidation.
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