National hospital chains see better M&A value creation

Mergers and acquisitions by national chains and systems achieve more financial value than local or regional systems, according to a report from the Deloitte Center for Health Solutions.

Deloitte looked at 101 hospital transactions in 2007 and 2008 and analyzed the financial performance of the acquired hospital pre-merger and up to three years post-merger. It turns out national chains are better at optimizing their merger integration around supply chain costs, labor and insurer contracts to create more value.

While acquired hospitals saw their financial and operational performance improve post-deal more than non-acquired hospitals during the same time period, they still remained lower performers compared to peers. Comparing both deal cohorts (national and regional/local), national chain acquisitions outperformed their local/regional counterparts, due to lower operating costs and increased volume, according to a related announcement.

Both deal cohorts in 2007 and 2008 increased patient volume post-deal, but the national chain targets studied experienced bigger volume growth.

The Deloitte report also found operating expenses increased for acquired facilities post-deal but that national systems did better at leveling increases for 2007 transactions.

Given that most hospital acquisitions fail to deliver improved operating margins post-transaction compared to median peers, the findings suggests healthcare organizations, especially local acquirers, should focus on accretive value when choosing acquisition targets.

As some deals fail to deliver accretive value, others face major challenges with combining cultures during the acquisition process, according to a recent survey by A majority of respondents also cited "failure to agree on a governance structure" as a main reason behind failed transactions, FierceHealthIT previously reported.

For more:
- here's the Deloitte study (.pdf)
- check out the announcement