National hospital M&A trends have played out pointedly on the stage of greater Cleveland, which is home to two non-government hospital Goliaths, Cleveland Clinic and University Hospitals. That was reinforced today as Parma Community General Hospital – one of the few remaining independent hospitals which operates in the western suburbs of Cleveland – said it signed a letter of intent to explore a merger with UH.
It’s a big deal because, just two summers ago, Parma formed a collaborative with two other small systems in the area so that they could work together to avoid this very situation. One of the other independents involved, EMH Regional Healthcare System, announced plans to merge with UH last month.
Big hospital players are scooping up smaller ones to expand their geographic reach, add new service lines and talent, and boost their market share and negotiating power. For the smaller guys, a merger or acquisition can bring greater financial stability amid healthcare reform and shifts in reimbursement.
Terrence Deis, president and CEO of Parma Hospital, said in a joint statement that cost pressures have made it difficulty for the hospital to prosper and grow.
The most recent data from the American Hospital Association shows that only 39 percent of community hospitals were independent facilities in 2011. The following year, hospital M&A hit its highest level of activity since 2000, according to a January report from Fitch Ratings.
The result of all of this consolidation? According to a 2012 report issued by the Robert Wood Johnson Foundation, it’s creating an increase in the price of hospital care and having an unclear effect on quality. The American Hospital Association has fought back on the big bad hospital chain play, saying that the overwhelming majority of transactions over the past six years have been procompetitive and in support of higher quality and lower costs (PDF).
Parma and UH say the evaluation process will take several months, with a final agreement expected by the end of the year.
