Benefits of Pursuing M&A for Rural Hospitals
A recent report highlights the advantages of rural hospitals integrating with larger health systems to maintain financial stability and access to care in these communities. While not suitable for all rural hospitals, those at risk may greatly benefit from affiliating with, merging with, or being acquired by a larger hospital operator. This analysis, conducted by consulting firm Dobson DaVanzo & Associates and commissioned by the Coalition to Strengthen America’s Healthcare, draws on research, Medicare cost reports, AHA Annual Survey data, and stakeholder interviews.
Financial pressures have led to 110 rural hospital closures between 2011 and 2021, with more than half of those closures being standalone hospitals. However, 45% of hospitals that were at high risk before integration with a larger system experienced financial improvement post-merger. On average, total margins increased from 1.8% to 2.2% after mergers and from 1.5% to 2.3% after affiliations. Following integration, one in three hospitals at risk of closure saw reduced risk, and two in three were no longer at risk.
Apart from financial benefits, integration can enhance the operational efficiency of rural hospitals. Aligning with a hospital system provides access to management processes, organizational structures, telehealth capabilities, and technological innovations from other system hospitals.
The significance of mergers and acquisitions for rural hospitals is crucial, with more closures expected. Low reimbursement rates from payers remain a major challenge for these hospitals, leading CEOs to seek solutions to ensure their survival.
In conclusion, integrating with larger health systems offers rural hospitals a lifeline in challenging times. This approach can not only strengthen their financial viability but also improve operational capabilities, ensuring continued access to essential healthcare services in rural communities.
