5 steps for hospitals considering affiliation

There were nearly 100 mergers and acquisitions (M&A) among hospitals and health systems last year, a 3 percent increase from 2012 and up more than 50 percent from 2010. Experts predict affiliations will increase in the industry this year as well.

But affiliation is not something providers should rush into, according to an article in Becker's Hospital Review.

Hospital and healthcare leaders considering affiliation should follow several steps, write Walter Olshanski, director of healthcare investment at KeyBanc Capital Markets Inc. and Holly Carnell, associate at McGuireWoods. Here are five of the nine they outline in the article:

  1. Know when to affiliate: Providers generally affiliate in response to lack of access to capital, falling reimbursements, limited recruitment ability or lower inpatient utilization of services, according to the article. In the post-Affordable Care Act (ACA) landscape, the consequences of these circumstances are more pronounced than before. When considering an affiliation, hospital boards should keep their mission, values and place in the community in mind, and think about how an affiliation might affect employees, doctors and community groups, Olshanski and Carnell write.

  2. Evaluate offers using key criteria: After deciding the time is right for an affiliation, boards should create decision criteria for potential partners, including their adaptability to the ACA, whether they will attract physicians to the market and incentive alignment within the health system.

  3. Keep physicians and the community in the loop: A physician representative to the board should communicate developments in affiliations to medical staff, as well as provide physician feedback to the board. Community involvement is often trickier, as it involves balancing transparency with discretion to avoid compromising the affiliation process, the authors write.

  4. Identify potential obstacles and liabilities: Hospitals must identify and quantify problems such as insufficient funds for employee pensions and benefit programs, burdensome real estate restrictions and other regulatory or compliance issues (see below). Planning ahead after identifying these issues allows hospital leaders to keep their focus during the actual affiliation.

  5. Address regulatory compliance issues: Affiliations generally require the selling hospital to disclose or otherwise resolve compliance issues before the transaction can go through, such as regulations like the Stark Law or technical issues on a more micro level like expired or unsigned physician contracts.

To learn more:
- read the article