Hospital Mergers Decline For Third Consecutive Year

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MERGERS AND ACQUISITIONS involving hospitals declined for the third straight year, according to Modern Healthcare’s eighth annual study of hospital consolidation activity.

During 2001, there were only 272 hospitals involved in mergers or acquisitions. This is a 14% decline from the 318 hospitals involved in M&A deals during 2000. Modern Healthcare also determined that the total number of transactions in 2001 was 95, a 26% reduction from the 129 deals done in 2000.

THE DARK REPORT tracks these numbers annually. As the table below shows, peak years for hospital dealmaking activity were 1995-1999. It was this frenzy of dealmaking that led to consolidation of hospital ownership, centered primarily in about 600 integrated health networks (IHN). This consolidation of hospital ownership was the direct impetus to widespread consolidation of hospital laboratories, a trend that was most active between 1997 and 1999.

First To Make The Connection

THE DARK REPORT was first in the lab industry to link the number of hospitals involved in mergers and acquisitions to the volume of hospital lab consolidation projects. As multiple hospitals come under a common management, invariably it was laboratory testing which became the first clinical department to undergo reorganization and consolidation.

Lab Consolidation Impact

The decline in hospital M&A activity for the third consecutive year is a sign that hospital lab consolidation will continue to be a minor trend in the lab industry. What is most notable about last year is that “2001 was more about disaffiliation than substantial merger and acquisition activity,” stated Michael Peregrine, an attorney specializing in healthcare with Gardner, Carton & Douglas, based in Chicago, Illinois. During 2001, there were a number of health systems that were unwinding ownership of physician group practices and HMOs.

THE DARK REPORT believes that the decline in hospital M&A also reflects two other important facts. One, hospital profits have improved during the past few years, easing the pressure on hospital CEOs to do deals. Second, once the tidal wave of dealmaking subsided, IHNs have found it challenging to operate multiple hospitals efficiently, thus discouraging further acquisitions.

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