Consolidation: Survival of the Fittest

CONSOLIDATION: SURVIVAL OF THE FITTEST

With negative margins, weak balance sheets, and inability to access capital, many hospitals are fighting to survive.  For some, merging with a larger system is the only option for survival.  As a result, it is likely that hospital consolidation activity will increase as more hospitals recognize their fate depends on it. 

In years past, the rationale for hospital mergers was much different than today.  Although the ability to increase bargaining power is important, there are many other issues to consider. Gathering market intelligence is an important first step when evaluating the viability of consolidation.  For example:

• Are your competitors aligning themselves with larger systems?

• Is there a consolidation trend in your market?

• Have you identified a potential partner is your market?

• Has bankruptcy activity increased?

Regardless of the industry, it is important to be negotiating from a position of strength; therefore, hospitals must be proactive and recognize key indicators in their market that may require expediting strategic alignment plans.

When choosing a partner, proper due diligence is essential, not only from a financial perspective but also from an operational and strategic perspective. Commonality in strategic vision and operating culture are also key factors when selecting a partner and evaluating the viability of a successful merger.

There are many predictions for the fate of the healthcare industry, but only time will tell which hospitals will successfully emerge from this latest economic downturn.

The Grassi Healthcare Team helps physicians, medical practices, healthcare institutions, nursing homes, and other healthcare businesses reach a higher level of success. For more information on Grassi Healthcare, go to www.grassicpas.com/healthcare.