Mergers promising economies of scale that will enable hospitals to operate more efficiently and at the same time court bargain-hunting consumers aren't delivering.
According to Modern Healthcare, there are plenty of pressures on such deals that can booby-trap the results and keep megamergers from delivering big payoffs. That doesn't necessarily mean that the enthusiasm for big deals has completely waned — at least not yet — although the numbers are down.
While the first quarter of 2015 saw 124 deals completed, for a total of $20,901,734,802, Q4 of 2015 saw that number sink to 105 (although the value was nearly double the deals in the first quarter, at $39,862,350,000). In the first quarter of 2016, however, there were only 74, totaling a paltry $4,972,115,000.
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Among those first-quarter 2016 deals, several did have hefty price tags. In the first, RegionalCare Hospital Partners of Brentwood, Tennessee, combined with Franklin neighbor Capella Healthcare, at a cost of $550 million. Los Angeles-based Prospect Medical Holdings forked over $300 million to acquire Springfield, Pennsylvania-based Crozer-Keystone Health System. And Brentwood's LifePoint Health spent $210 million to buy St. Francis Hospital in Columbus, Georgia.
But another Franklin acquisition has highlighted some of the problems inherent in such deals. Community Health Systems bought Naples, Florida-based Health Management Associates in 2014, acquiring 71 HMA hospitals, but HMA was already suffering from management turnover, government inquiries and investor unrest. In fact, its board had been turfed out by investors before the deal was cut.
And earnings are lagging; in 2015, they amounted to $1.37 per share on $19.4 billion in revenue, but that's still considerably below where they were in 2013 — the year prior to the merger — when they totaled $1.52 per share on revenue of $12.8 billion.
Other problems that can haunt big mergers include problems that came to light only after the ink was dry on the deal; management preoccupied by other concerns and cultures that just don't mesh. In addition, debt taken on to complete a deal can weigh on management, as can poor performance.
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