Mergers and Acquisitions for Academic Medical Centers

27 March 2014 Health Care Law Today Blog

Academic Medical Centers and teaching hospitals (AMC/TH) are increasingly choosing to affiliate in some manner with other health care providers in order to surmount significant industry challenges. The first quarter of 2014 saw several hospital mergers and acquisitions announced including two that would create large systems in Detroit and Chicago. In Detroit, Botsford, Beaumont and Oakwood hospitals announced merger plans and in Chicago, Northwestern Memorial and Cadence Health announced similar plans. At the same time, authorities are scrutinizing both pre and post-merger activity particularly in view of some research that suggests mergers do not always produce intended benefits.

In a recent article for the February 2014 issue of the ABA journal, The Health Lawyer (pg 30), a co-author and I reviewed a number of recent affiliations that range along a continuum from creative non-traditional approaches to affiliation to more traditional acquisition models. The article referred to analysis by commentators that suggested that AMC/TH leadership could be categorized as either reactive, opportunistic or proactive in relation to potential affiliations. In turn, leadership’s response was shaped by the nature and intensity of competition in the market which is a product of physician consolidation, vertical integration of health plans and the presence of other strong multi-hospital systems.

While mergers and acquisitions will continue to dominate transactions, other forms of collaboration are also appearing and may be more functional. Other approaches well short of acquisition that were designed to achieve targeted goals were also described in the ABA article and include a collaborative among hospitals systems that are widely dispersed geographically but have formed a platform for operational projects (such as joint purchasing, capital asset management) and clinical affiliations (e.g., development of best practices in population health management).

More and ever creative approaches to collaboration or outright consolidation are likely to be seen in the future of AMC/THs. Financial performance has been declining at the same time demands to do more and assume greater accountability are growing. These initiatives may point the way to successfully address these challenges.

Takeaways

  • If mergers or acquisitions do not seem to be the answer to meeting financial and programmatic challenges because of anticipated legal challenges or lack of synergies, consider creative approaches to collaborating.
    • Super networks with providers outside of the market may offer real opportunity to gain efficiency (e.g., joint purchasing and mapping and swapping underutilized and overutilized resources) and competencies (e.g., best practice development administratively and clinically) with far lower legal risk.
    • AMC/THs can provide real benefits to community and rural hospitals as part of an overall strategy that identifies what services from an AMC/TH would most benefit these hospitals and the cost and benefit to the AMC/TH to provide them. Rural hospitals particularly often need strong clinical and financial partners and the law often favors rural hospitals enabling AMC/THs more flexibility and benefit in collaborating with them.
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