Possibility of mergers and acquisitions of healthcare systems in developing markets

Texas, Arizona, Florida and Idaho are home to some of the fastest-growing cities in the country, and the hospitals and health systems in those metropolitan areas could be targets for mergers or acquisitions next year. .

Eight of the 15 fastest-growing major cities between July 2020 and July 2021 were in Arizona and Idaho and seven in Florida, Tennessee and Texas, according to the latest Census Bureau data USA. The populations in each of these cities, including Georgetown, Leander and New Braunfels in Texas; Queen Creek, Buckeye, Casa Grande, Maricopa and Goodyear in Arizona; Fort Myers, North Port and Port St. Lucie in Florida; Meridian, Caldwell and Nampa in Idaho; and Spring Hill in Tennessee, increased from 5% to 10.5% over that time period, reflecting broader trends in population growth in the South and West over the past decade.

Population growth is one of several criteria health systems consider when they consider mergers and acquisitions. In general, and especially for the commercially insured population, combining health systems can increase top-line revenue, improve recruitment efforts, and expand services offered.

CEOs looking for merger partners are also identifying gaps in critical care that will be in high demand as populations age, reimbursement trends among commercial insurers and state governments state, an organization’s reputation, and the market share of potential competitors.

“The southern states are attracting a lot of people and health systems will try to find a way in,” said Rick Kes, senior healthcare analyst at accounting firm RSM. “It can be harder to break into a growing market, but some health systems will be looking for partners.”

Advocate Aurora Health and Atrium Health completed a merger in early December, combining operations in Wisconsin, Illinois, North Carolina, South Carolina, Alabama and Georgia. The $27 billion combined organization is based in Charlotte, North Carolina, a metropolitan area that has grown about 20% over the past decade, according to census data.

“The notion that it will be in Charlotte makes perfect sense for several reasons: all of Charlotte’s energy and the bull market it has,” said Jim Skogsbergh, co-CEO of Advocate Health. announced in May. Co-CEO Eugene Woods, based in Charlotte, will take the helm in mid-2024.

Health systems in Arizona are trying to keep up with population growth by adding capacity and services, similar to other rapidly expanding markets across the country. The city of Queen Creek, in the Phoenix metropolitan area, grew 8.9% from 2020 to 2021, second only to Leander and Georgetown in Texas in annual population growth. Phoenix Children’s is trying to meet demand by building a new facility in Glendale, Arizona—which will provide inpatient care, an emergency department, an outpatient surgery center, and a general practice clinic. 2024—as well as the independent emergency department and specialty clinic in Avondale opening next year. Earlier this year, Phoenix Children’s opened a physical therapy clinic in Avondale.

The population of West Valley, an area that includes one of the fastest growing counties in the country in Maricopa County, is expected to double the national rate through 2026. The estimated child population will growing from about 400,000 in 2021 to nearly 500,000 in 2030, and Phoenix Children’s is investing more than $225 million in capital spending to add services, the health system said.

“More than 60 percent of the state’s population lives in Maricopa County,” said Robert Meyer, president and chief executive officer of Phoenix Children’s.

Phoenix is ​​one of the least concentrated hospital markets in the country, according to Health Care Cost Institute data. Dallas-based Stewart Health Care acquired its fifth Arizona facility in April with the purchase of Abrazo Mesa Hospital in Mesa, located just east of Phoenix.

Stewart has also been active in Florida. The health system purchased five hospitals across Florida’s Miami-Dade and Broward counties from Tenet Healthcare Corp. in 2021. Stewart added a sixth hospital in South Florida in April, when it purchased the former Miami Medical Center property from Nicklaus Children’s Health System. The hospital has been closed since 2017 and Stewart plans to turn the space into an inpatient facility for adults.

South Florida is home to some of the fastest growing cities in the country such as Fort Myers and Port St. Lucie. According to HCCI data, while the southwest Florida market has minimal competition and can be harder to enter, Miami is one of the most competitive metropolitan areas.

Nathan Ray, head of healthcare M&A operations at consulting firm West Monroe, said: “Population growth may make a merger target interesting or disqualifying, but that shouldn’t be a factor. only.

“Another factor is the pool of providers and the ability to bring specialties to existing health system locations so they are considered the best and the newest,” he said. “The growth of specialist physician groups has always followed population changes.”

While hospitals in high-growth markets can increase access to potential patients and staff, organizations will also have to spend more to accommodate a growing patient base. Kevin Holloran, head of Fitch Ratings’ nonprofit healthcare credit analysis team, says the benefits outweigh the drawbacks.

“The local economy will become an even more important factor in determining the financial strength of the hospital,” he said.

However, health systems can think twice about entering a highly centralized market. The Federal Trade Commission challenged several hospital deals this year, ultimately killing the deals. The systems are also facing increasing scrutiny from attorneys general concerned about an out-of-state entity holding too much control.

Sioux Falls, South Dakota-based Sanford Health, and Minneapolis-based Fairview Health Services announced plans to merge in November, prompting Minnesotans to contact Attorney General Keith Ellison (D) with concerns about charitable assets going out of state. Ellison will be coordinating several public meetings about the transaction in early January.

Regulatory oversight can extend due diligence and review times by more than a year, said David Jarrard, president and chief executive officer of consulting firm Jarrard.

“Time kills deals,” he said. “The longer it takes, the less the value of the investment.”


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