Washington, D.C., Oct. 12, 2017 (GLOBE NEWSWIRE) -- Consolidation of U.S. hospitals has grown over the past decade, based in part on the assumption that acquired hospitals’ operating margins would increase after a merger as the combined entity realizes economies of scale. But that’s not the case for some, according to a new study conducted by the Deloitte Center for Health Solutions in collaboration with the Healthcare Financial Management Association (HFMA). In fact, when market and hospital-specific characteristics were factored in, researchers found that, on average, acquired hospitals experienced a post-transaction decline in operating margins, revenue, and expenses that typically lasted two years.
The report identifies changes in revenue and capital investment post-mergers as factors potentially contributing to these results. Although operating expenses in many acquired hospitals collectively decreased after a merger, operating revenue dropped faster, resulting in a decline in acquired hospitals’ operating margins that leveled off two years post-transaction.
The survey found that nearly 80 percent of acquiring organizations made significant capital investments in the acquired facilities soon after the transaction concluded. Additionally, nearly 40 percent of all survey respondents used the capital to upgrade or implement clinical information systems, the top-reported use of capital. These investments can affect financial performance in the post-transaction period. Many acquired organizations were in financial distress, or required investments in staff, health information technology, physician recruitment, facilities, medical equipment, or pension funding to improve operations and quality of care. Implementing or upgrading clinical information systems was the most common capital investment. In many cases, these investments offset expense reduction achieved through combining the organization’s overhead functions and supply chains.
“Through mergers and acquisitions, the assumption often is that health system investments in technology, quality improvement, ancillary services, or shared services can be spread across a broader base post-transaction,” said Jimmy Peterson, principal, Deloitte Transactions and Business Analytics LLP , and life sciences and health care M&A leader. “However, not all hospitals experience higher operating margins following acquisition and the importance of culture and communications cannot be overstated.”
Researchers identified eight strategies and business practices related to integration planning and execution that correlated with achievement of higher margins. Executives from the survey, as well as interviews conducted, indicated that mergers and acquisitions were more likely to succeed when leaders:
- Developed a strong strategic vision for pursuing the transaction;
- Had explicit financial and non-financial goals;
- Held leadership accountable, often at the vice-president level, for integration efforts;
- Identified cultural differences between the organizations;
- Made clear and upfront decisions on executive and mid-management leadership;
- Aligned clinical and functional leadership early in the process;
- Followed best practices for integrating the acquired or merged organization into the parent organization; and
- Implemented project management best practices, with tracked targets and milestones, from day one of transaction close until two years after.
“This study makes it clear that mergers are unlikely to succeed unless leaders tackle the tough decisions early on,” said HFMA President and CEO Joseph J. Fifer, FHFMA, CPA. “Prospective merger partners should sit down together and figure out what the organizational structure and management team will look like after the merger. They should also recognize that it takes sustained effort to blend organizational cultures.”
The study included a quantitative analysis of more than 750 hospital acquisitions or mergers that took place between 2008 and 2014. An array of financial, operational, and quality metrics was examined. A qualitative online survey of 90 hospital financial executives from organizations in the data set, along with telephone interviews with 13 others, supplemented the quantitative research. All research was conducted in 2017.
The full research report may be accessed at hfma.org/mergers and www.deloitte.com/us/hospital-mergers-and-acquisitions. A virtual conference session exploring the implications of the study for healthcare executives is scheduled for December 14. For more information or to register, visit hfma.org/virtualconference.
With more than 38,000 members, the Healthcare Financial Management Association (HFMA) is the nation's premier membership organization for healthcare finance leaders. HFMA builds and supports coalitions with other healthcare associations and industry groups to achieve consensus on solutions for the challenges the U.S. healthcare system faces today. Working with a broad cross-section of stakeholders, HFMA identifies gaps throughout the healthcare delivery system and bridges them through the establishment and sharing of knowledge and best practices. We help healthcare stakeholders achieve optimal results by creating and providing education, analysis, and practical tools and solutions. Our mission is to lead the financial management of health care.
About Deloitte Center for Health Solutions
The source for fresh perspectives in health care: The Deloitte Center for Health Solutions (DCHS), part of Deloitte LLP’s life sciences and health care practice, looks deeper at the biggest industry issues and provides new thinking around complex challenges. Cutting-edge research and thought-provoking analysis gives our clients the insights they need to see things differently and address the changing landscape.
Deloitte provides industry-leading audit, consulting, tax and advisory services to many of the world’s most admired brands, including 80 percent of the Fortune 500 and more than 6,000 private and middle market companies. Our people work across more than 20 industry sectors to deliver measurable and lasting results that help reinforce public trust in our capital markets, inspire clients to make their most challenging business decisions with confidence, and help lead the way toward a stronger economy and a healthy society.
Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.
# # #
A photo accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/1a0f4aa9-6026-4b4b-ab93-86eaa3ae9488
Source:Healthcare Financial Management Association