November 12, 2012
On Oct. 31, 2012, Beaumont Health System and Henry Ford Health System announced that they had signed a letter of intent to combine their operations into a $4.6 billion organization. The announcement followed less than two weeks after Trinity Health and Catholic Health East (CHE) went public with the news that the two Catholic healthcare systems intend to merge. The combined Trinity/CHE system will have annual operating revenues of about $13.3 billion and assets of about $19.3 billion.
Discussing both the Beaumont/Ford and the Trinity/CHE mergers, representatives acknowledged the changing healthcare environment and the need to deliver integrated care and focus on population health. According to Rex Burgdorfer, an investment banker with Juniper Advisory, which is actively advising several hospital boards of directors in the state, “the mergers have added to the sentiment among smaller systems and independent hospitals that staying the course may no longer be a viable option for institutions committed to fulfilling their mission to serve the community.”
Healthcare reform is contributing to the increase in hospital and health system affiliations. According to Burgdorfer, “Organizations have acknowledged that pricing for services is switching from the traditional fee-for-service model towards a bundled payment model, and to survive in this new environment, access to capital and the ability to manage risk will be critical.” The changing reimbursement model means that health systems will be responsible for the overall health of patients. This is in contrast to the historic model where hospitals are paid for each individual service provided to a patient.
The two October announcements followed several other 2012 Michigan hospital transactions, including the following:
While Michigan is a great example of a state that is rife with hospital and health system affiliation activity, it is not alone. The current consolidation trend is likely to continue on a national level into 2013. Burgdorfer observes, “[I]n 2013 we expect to see more business combination activity between significant, multistate health systems. In addition, new structural models, such as hybrid joint ventures between regional nonprofit systems and investor-owned companies, will increase the number of strategic options available to hospital systems that are exploring transactions.”