Hospital acquisition or management contract: a theory of strategic choice

Mergers and acquisitions in Western European health care: exploring the role of financial services organizations

Recent policy developments in Western European health care - for example in the Netherlands - aim to enhance efficiency and curb public expenditures by strengthening the role of private sector. Mergers and acquisitions (M&As) play an important role in this respect. This article presents an analysis of 1606 acquisition deals targeting health care provider organizations in Western Europe between 1990 and 2009. We particularly investigate the role of financial services organisations as acquirers. Our analysis highlights (a) a rise of M&As in Western Europe since 2000, (b) an increase of M&As with financial service organisations acting as acquirer in absolute terms, and (c) a dominant role of the latter type of M&As in cross-border deals. To explain these developments, we make a distinction between an integration and a diversification rationale for M&As and we argue that the deals with financial services organisations in the role of acquirer are driven by a diversification rationale. We then provide arguments why health care, from the acquirer's perspective, can be considered as an interesting target in a diversification strategy and we advance reasons why health care providers may welcome this development. Although caution in drawing conclusions is needed, our findings suggest a penetration of private capital into health care provision that may be interpreted as a specific form of privatisation. Furthermore, they point to a rising internationalisation of health care. Both findings may entail far-reaching implications for health care, as they may induce both cultural privatisation and cultural internationalisation.

Does system membership enhance financial performance in hospitals?

While hospitals continue to join multi-institutional systems, empirical data on the benefits of system membership are ambiguous. This study examines the same 166 Florida hospitals in 1986 and 1992. System membership, in general, did not enhance financial returns (measured by operating margin, total margin, and return on assets) for the pooled data or for either year. In fact, a significant negative relationship is noted in 1986. However, when only hospitals affiliated with national systems (in this study, American Medical International, Hospital Corporation of America, or Humana) are analyzed, a positive statistically significant association is found for two of the above three profitability indicators for both the pooled data and for 1986. However, there was no statistically significant impact noted for 1992. Reasons for the apparent discrepancy in the impact of national versus local/regional systems on hospital financial performance and the apparent declining ability of national systems to generate above-average returns are explored.

Consequences of organizational change in U.S. hospitals

Organizational change has become commonplace among U.S. hospitals. Empirical investigations of the consequences of organizational change, however, are relatively scarce, and findings of existing studies are inconsistent. In this article, the authors review the rationale and performance implications of hospital organizational change in three areas: (1) the development of new multi-institutional arrangements, (2) change in traditional ownership and management configurations, and (3) diversification in organizational products/services and consolidation of organizational scale. Empirical research on hospital change published between 1980 and 1999 in the health services research, social science, and business literatures is reviewed to highlight the potential pitfalls that hospitals may encounter in their effort to remain viable. The article also summarizes the strengths and weaknesses of current hospital change research and provides specific suggestions for future research in this area.

Multihospital system affiliation as a survival strategy for rural hospitals under the prospective payment system

The introduction of Medicare's Prospective Payment System (PPS) has disproportionately increased financial pressures on rural hospitals and posed challenges to the survival of these institutions. Increasingly, rural hospitals are seeking strategies that can enhance their chances for survival in a turbulent and hostile environment. This study examined the survival effects of one such strategy, multihospital system affiliation. Specifically, we assessed: (1) whether and how different types of system affiliation in the post-PPS era affect the likelihood of rural hospital survival; (2) whether particular structural, environmental and hospital performance characteristics moderate the effects of system affiliation on rural hospital survival; and (3) whether systematic selection by rural hospitals into multihospital systems potentially accounts for observed relationships between system affiliation and survival. Proportional hazards analyses indicate that system affiliation with investor-owned systems significantly reduces survival probabilities of rural hospitals. Affiliation with not-for-profit systems or system affiliation under contract management arrangements does not affect survival probabilities of rural hospitals. These general findings are moderated by the effects of hospital ownership and size at the time of affiliation. Finally, study findings indicated that systematic selection by poor performing rural hospitals into investor-owned systems has occurred in the post-PPS era. No evidence of selection into not-for-profit systems was discovered.

Hospital CEO turnover: modelling more or less durable places to work

This study documents the rising rate of hospital CEO turnovers between 1978 and 1988, a trend that has accelerated since the introduction of Medicare's prospective payment system. Using data from the American Hospital Association, we identify characteristics of hospitals experiencing rapid CEO turnover. Results show that full utilization along with a positive operating margin can prolong the CEO's tenure but ownership and system membership specify the findings. For example, CEO turnover is higher in investor-owned, multihospital systems hospitals if they are small, if their costs are high and if they have recently joined a multi-hospital system. By contrast, in not-for-profit multihospital systems, turnover is higher if they have low occupancy and low operating margins. CEO turnover in not-for-profit, freestanding hospitals is higher in metropolitan areas and in the Western region of the US as well as in hospitals with low occupancy, low operating margins and lower costs per patient day. Governmental hospitals experiencing higher CEO turnover are small, metropolitan and tend to be located in any region except the Midwest. Many have recently joined a multi-hospital system and have experienced low operating margins.