Alternatives to a Alternatives to a Merger or Acquisition Merger - PDF document

_________________________ _________________________ Alternatives to a Alternatives to a Merger or Acquisition Merger or Acquisition _________________________ _________________________ Dan Mulholland, J.D. Steve Rivkin Steven Tringale 1

“The ACA will accelerate hospital “The ACA will accelerate hospital mergers, Moody’s says” mergers, Moody’s says” – Modern Healthcare – Modern Healthcare “The ACA has unleashed “The ACA has unleashed a merger frenzy” a merger frenzy” – Former FTC deputy director – Former FTC deputy director 2

Hospital M& A numbers Hospital M& A numbers • From 2007 thru 2012, according to • From 2007 thru 2012, according to the Foundation for American the Foundation for American Hospitals, there were: Hospitals, there were: • 432 mergers and acquisitions, • 432 mergers and acquisitions, • Involving 835 hospitals • Involving 835 hospitals In 2014 In 2014 • There were 95 mergers, • There were 95 mergers, acquisitions and joint ventures acquisitions and joint ventures • February 2015 report from Kaufman Hall • February 2015 report from Kaufman Hall 3

Recent Examples Recent Examples • Sept. 2014, Connecticut: 7 hospitals in an • Sept. 2014, Connecticut: 7 hospitals in an alliance alliance • January 2015, Ohio: Cleveland Clinic + 5 • January 2015, Ohio: Cleveland Clinic + 5 systems planning statewide network of 40 systems planning statewide network of 40 hospitals hospitals • January 2015, Arizona: Planned merger of • January 2015, Arizona: Planned merger of 27 hospitals (Banner + Univ. Arizona Health) 27 hospitals (Banner + Univ. Arizona Health) -- New York Times, Sept. 17, 2014 4

“Lots of hospitals are looking across the “Lots of hospitals are looking across the street at other hospitals merging. They also street at other hospitals merging. They also feel like they have to merge too, or else feel like they have to merge too, or else they’ll become insignificant or left out of they’ll become insignificant or left out of health plan networks. Especially the smaller health plan networks. Especially the smaller community hospitals feel they need larger community hospitals feel they need larger scale to continue to be stable, to serve, or scale to continue to be stable, to serve, or be financially viable.” be financially viable.” -- Alexis James Gilman, deputy assistant director, Mergers Division, Federal Trade Commission Mergers Carry Major Risks Mergers Carry Major Risks • The industry is littered with deals • The industry is littered with deals gone bad gone bad • Two-thirds of deals do not meet • Two-thirds of deals do not meet expectations, according to a 2012 expectations, according to a 2012 report from PricewaterhouseCoopers report from PricewaterhouseCoopers 5

Why? Why? • Inadequate due diligence • Inadequate due diligence • Culture clashes • Culture clashes • Overpaying • Overpaying • Excessive debt • Excessive debt • Loss of key employees • Loss of key employees • Extended integration period • Extended integration period _________________________ _________________________ Alternatives? Alternatives? _________________________ _________________________ 6

Affiliations Affiliations Alliances Alliances Coalitions Coalitions Collaborations Collaborations JVs JVs Partnerships Partnerships and… and… Independence Independence “Hospital Alliances On the Rise.” “Hospital Alliances On the Rise.” • They build population health • They build population health management capabilities management capabilities • Maintain the independence of members • Maintain the independence of members • Provide vehicles for increasing • Provide vehicles for increasing physician engagement physician engagement 7

A Regional Alliance (Sept. 2013) www.AllSpireHealthPartners.org Founding Initiatives Founding Initiatives  Group purchasing/sourcing and  Group purchasing/sourcing and distribution distribution  Population health management  Population health management  Sharing best clinical practices  Sharing best clinical practices  Information technology  Information technology 8

Florida Times-Union , Jacksonville, FL “ ” “ ” • “Our systems serve contiguous areas, yet • “Our systems serve contiguous areas, yet operate in distinct markets. We see this operate in distinct markets. We see this as an opportunity to protect and as an opportunity to protect and strengthen what we’ve each always done, strengthen what we’ve each always done, while positioning ourselves to thrive in while positioning ourselves to thrive in the future as a network of locally- the future as a network of locally- governed organizations.” governed organizations.” 9

PA Mountain Care Netw ork PA Mountain Care Netw ork • 3 small hospitals: Clarion Hospital, Indiana • 3 small hospitals: Clarion Hospital, Indiana Regional, Punxsutawney Area Hospital Regional, Punxsutawney Area Hospital • Combined: 2,200 employees; 200 doctors; • Combined: 2,200 employees; 200 doctors; $220 million net patient revenue $220 million net patient revenue • Will keep individual identities and operate • Will keep individual identities and operate under shared corporate umbrella under shared corporate umbrella • Will collaborate on cost reductions and • Will collaborate on cost reductions and service improvements service improvements “Many of the “Many of the advantages of a advantages of a merger are now merger are now available through available through strategic strategic partnerships.” partnerships.” – Editorial, February 2015 – Editorial, February 2015 10

“Some of the biggest names in “Some of the biggest names in health care delivery are putting health care delivery are putting their brand names on systems far their brand names on systems far afield from their main campuses.” afield from their main campuses.” February 25, 2013 9 members in its “Physician Network,” started in 2005. 23 affiliates with its heart, neuroscience, neurosurgery, transplant, TeleStroke and oncology service lines, according to news reports. 11

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