Acquisitions can save failing hospitals and fuel new services, AHA argues with new report

Photo of two men shaking hands in front of a hospital
A sizable portion of the hospitals acquired between 2015 and 2019 were in dire financial straits but saw their fortunes turn around after being integrated, the AHA and Kaufman Hall wrote in a new analysis. The favorable report comes as industry groups push Washington to pass on new regulations surrounding provider consolidation. (cunaplus/Shutterstock)

The American Hospital Association has tapped a new industry analysis highlighting several acquired hospitals’ poor financials as its latest evidence in support of unfettered provider consolidation.

The report, prepared for the trade group by industry analyst firm Kaufman Hall, shows that financial distress was cited as a key factor in roughly 20% of 463 analyzed hospital acquisition deals closed between 2015 and 2019.

One in three of these distressed organizations had declared bankruptcy prior to the deal, according to the report. However, following the close, more than 80% of those hospitals “were saved from bankruptcy and remain operational today,” Kaufman Hall wrote.

The analyst also conducted an additional analysis of 266 hospitals for which additional data was available via the AHA’s Annual Survey.

Among these, about a third were “financially challenged,” meaning they had reported an operating margin at or below -2.0% during two of the three years prior to their acquisition. An additional 6% within this group were not financially challenged but did cite financial distress as a driving factor in their merger and acquisition agreement.

RELATED: Chamber of Commerce, AHA press Congress to stay away from merger framework

AHA and Kaufman Hall’s report paired these findings with research from the University of North Carolina outlining 138 rural hospital closures logged since 2010. With these closures and industry-wide financials worsening due to COVID-19, the groups presented mergers, acquisitions and other integration partnerships as “important tool[s] for keeping struggling hospitals open and preserving access to care.”

“America’s hospitals and health systems—and the 6 million women and men who work there—are cornerstones of their communities, and that has never been more apparent than during the ongoing public health emergency,” said Rick Pollack, AHA president and CEO. “Some hospitals have found that partnerships, mergers and acquisitions were a necessary response to a changing environment in their community and have allowed them to maintain the vital services they provide each and every day to patients and communities.”

Thirty-eight percent of the acquired hospitals analyzed by Kaufman Hall and AHA added at least one new service following the transaction, with that number jumping to 46% if they were acquired by an academic medical center, according to the report.

Kaufman Hall also wrote that integrated provider systems generally demonstrate better Medicare Advantage Star Ratings, consumerism ratings and credit ratings, the latter of which provides access to low-cost capital that can fund long-term investments.

The new report comes as AHA and other industry groups are working to persuade the federal government away from new regulatory scrutiny around merger and acquisition deals.

RELATED: Hospitals saw more megamergers in the last quarter. Kaufman Hall explains why

A review of potential new regulations were ordered by President Joe Biden over the summer and led to swift pushback from AHA and others. Just last week the trade group joined with biotechs, major technology groups and the U.S. Chamber of Commerce to urge Congress away from new legal frameworks and toward general antitrust enforcement.

Opponents of the provider industry’s consolidation activity frequently argue that the mergers can lead to reduced competition and subsequent increases in the cost of care.

AHA and Kaufman Hall’s report also follows a pair of studies from the Agency for Healthcare Research and Quality (AHRQ) and IBM Watson Health that compared nearly a decade of rural hospital acquisitions to equivalent hospitals that remained independent.

The first of these was cited by the AHA and Kaufman Hall and reported improved mortality across multiple common conditions among the acquired rural hospitals. The second, which remained unmentioned, spotted service line cuts and evidence of unmet community mental health needs surrounding the same sample of recently acquired rural facilities.