US hospitals have been consolidating with enthusiasm. Bigger, however, does not automatically equate to better.
US hospitals have been consolidating with enthusiasm, but the average acquiring provider left nearly $25 million per target on the table in 2015—potential cost and revenue synergies that could have been invested to improve access and the total cost of care. If, however, they focused on key M&A value drivers hospitals could boost margins by as much as 22 percent per target.
Health system M&A activity has been falling short of maximum value potential for some years.
Health system M&A activity has been falling short of maximum value potential for some years. Even some of the biggest recent deals have lost value post close.
Overall, acquiring health systems may be missing out on $4-$19 million in annual cost savings per hospital and losing revenue uplift of $2.5-$6 million per hospital per year.
When a $12.5 billion health system acquired another valued at more than $1 billion the combined entity’s operating margin declined from 4 percent to break even over four years, while supply expenses rose.
When a $16.5 billion health system acquired another valued at more than $4 billion, the combined entity’s margins declined from 7 percent to 5 percent over four years while labor expenses rose.