Analysis Shows Many Financially Struggling Hospitals Were Able to Remain Open Due to Integration
WASHINGTON (October 12, 2021) — A new analysis prepared by Kaufman, Hall & Associates, LLC and released today by the American Hospital Association shows a range of partnerships, mergers and acquisitions can be an important tool for keeping financially struggling hospitals open and preserving access to care, among other key benefits.
The degree of integration for a given hospital varies depending on a number of factors, according to the report. For example, hospitals in close geographic proximity or with a particular organizational need may pursue a less formal collaboration that allows them to maintain independence. At the other end of the spectrum is an asset sale and change of control transaction. In the middle are joint operating agreements that continue some separate structures while merging others.
Kaufman Hall analyzed a combination of its own database of merger and acquisition transactions from 2015 to 2019 and AHA Annual Survey data to find that:
- Almost 40% of acquired hospitals were financially challenged, cited financial distress, or both.
- Among the acquired hospitals that cited financial distress as a key driver for the transaction, more than one-third had declared bankruptcy, a clear sign of imminent closure. Of these, more than 80% were saved from bankruptcy and remain operational today.
According to Kaufman Hall findings, in addition to preserving access to care, partnerships, mergers and acquisition have helped hospitals achieve benefits that include:
- Capital investment and improvements;
- Expanded services to patients;
- Improvements in cost and quality of patient care; and
- Improved patient experience.
Integrated systems also rank highly for excellence in services provided to beneficiaries who are part of the Medicare Advantage program.
“America’s hospitals and health systems – and the 6 million women and men who work there – are cornerstones of their communities, and that has never been more apparent than during the ongoing public health emergency,” said Rick Pollack, AHA president and CEO. “Some hospitals have found that partnerships, mergers and acquisitions were a necessary response to a changing environment in their community and have allowed them to maintain the vital services they provide each and every day to patients and communities.”
Hospitals and health systems face several increasing financial and operational pressures that have fueled these arrangements. At the beginning of 2021, almost one year after the pandemic took hold in the U.S., half of hospitals had negative margins, the result of significant volume declines and increased pandemic-related costs. Prior to the COVID-19 pandemic, about 25% of hospitals had negative operating margins. In some cases, these forces have resulted in closures – 138 rural hospitals shut their doors since 2010, with 19 in 2020 alone, according to the Cecil G. Sheps Center for Health Services Research at the University of North Carolina.
The COVID-19 pandemic highlighted the central role that hospitals play in their communities. Hospitals will need continued flexibility to seek strategic opportunities and partners as they work to recover from the pandemic’s impacts on their staff, operations and financial health, Kaufman Hall found.
A full copy of today’s analysis can be found on the AHA website here.
About the American Hospital Association
The American Hospital Association (AHA) is a not-for-profit association of health care provider organizations and individuals that are committed to the health improvement of their communities. The AHA advocates on behalf of our nearly 5,000 member hospitals, health systems and other health care organizations, our clinician partners – including more than 270,000 affiliated physicians, 2 million nurses and other caregivers – and the 43,000 health care leaders who belong to our professional membership groups. Founded in 1898, the AHA provides insight and education for health care leaders and is a source of information on health care issues and trends. For more information, visit the AHA website at www.aha.org.