During the current decade, CEOs of many large non-profit systems have reported that the hospital industry is confronted with major systemic issues that can best be addressed by industry consolidation.
These issues center on business complexity and capital demands. They argue that the structure (the number of business entities and their ownership form) of the hospital industry will likely change. At the same time, the meltdown of the U.S. financial system in the fall of 2008 (“Meltdown”) is likely to profoundly affect business combination transactions, in terms of both transaction types and the ownership form of participants, for years to come.
Because meaningful change in the structure of the hospital industry can only result from business combinations, the impact of the Meltdown on transaction options is an important topic for non-profit health systems to consider. This article describes two factors that will affect the extent to which industry concentration will occur in the future: the differing approaches taken to industry consolidation by various non-profit hospital groups, and the types of transactions that are likely to be available subsequent to the Meltdown.
Results of Business Combinations
In considering any impact ownership form may have on future levels of concentration in the hospital industry, it is helpful to consider the results of merger activity over the past twenty years.