In the good old days of healthcare, most of the weak eventually fell under the bus while the strong vroomed merrily down the road. Now it's not enough to be strong. Hospitals have to be at their absolute strongest, which may necessitate mergers even for hospitals that are operating in the black. That sign of the times is exemplified in the latest merger news from the Albany, N.Y., region. And in separate but definitely related news, merger-and-acquisition activity is on an upward trajectory in the hospital sector, and buyout firms are looking for deals, said Scott Mackesy, a general partner with Welsh Carson Anderson & Stowe, at the Dow Jones Limited Partner Summit in New York, reports the Wall Street Journal blog Private Equity Beat. "Near term, it's going to be a fairly good business," he said. "Longer term, there are tons of fundamental challenges."
In the New York deal, three profitable health systems--Albany-based St. Peter's Health Care Services and the two Troy-based systems, Seton Health and Northeast Health--have formalized plans to merge and form a new nonprofit corporation after 17 months of talks, reports the Albany Business Review. The as-yet-unnamed regional powerhouse will include five hospitals and 12,000 employees. The organization will be secular but operate as an affiliate of St. Peter's parent, Catholic Health East.
The merger will position the hospital systems to withstand the winds of health reform and the "continuous state cuts" in Medicaid funding, St. Peter's President and CEO Steven Boyle told the Business Review.
Seton Health CEO and President Gino Pazzaglini concurred. "We wanted to design a system that would allow us to survive under these harsh (economic) conditions," he told the Troy Record. "We recognize that we're economic engines in our communities ... bottom line, this new design is going to be better for our patients."
The three health systems have set a preliminary estimate at $55 million to make hospital improvements.
To learn more:
- read the Wall Street Journal blog post
- read this Albany Business Review article
- read this Troy Record article
- read the hospitals' announcement
- read this Kaiser Health News merger roundup