Hospital M&A — Increasing Switch from Not-For-Profit to For-Profit

As reported by Kaiser Health News and USA Today (Jenny Gold, KHN Staff Writer, Jul 13, 2010) (http://www.kaiserhealthnews.org/Stories/2010/July/13/hospital-mergers.aspx), there is a trend for for-profit hospitals to purchase not-for-profit hospitals.  During the first half of 2010, there were at least 50 hospital M&A deals.  If this pace continues, it will exceed the 80 deals consummated in 2009 but fall far short of the 249 deals in 2006. 

For-profit hospitals have capital to invest and are looking to expand.  Not-for-profit hospitals are a good target as they are struggling to raise capital in a recessionary economy.  Their facilities are in need of upgrading to be more competitive and deliver the quality of care their patients deserve. 

Healthcare reform also makes not-for-profit hospitals attractive.  Expanding the number of insured Americans by 30 million increases the number of potential patients to serve.  Also, healthcare reform could decrease the number of patients requiring charity care.  With a decreased need to provide charity care, why should hospitals remain not-for-profit?  Why not access capital markets by turning for-profit?  This will provide the hospital with the funds to improve the quality of care.

As the number of not-for-profit hospitals diminishes over time, who will provide care for the 20 million citizens and non-citizens who remain uninsured?  These people are not only the poor who require charity care.  It is those who fall through the cracks of healthcare reform or are not American citizens but reside in this country.

It is unlikely that the for-profit hospitals will provide a sufficient amount of care for these patients.  A little unreimbursed care enhances a for-profit hospital’s relationship with the community.  Too much unreimbursed care goes against their appropriate quest for profits. 

A question that needs to be addressed, depending on how far the conversion of not-for-profit hospitals to a for-profit ownership progresses, is whether the lack of care for 20 million residents creates a public health issue.  Will an epidemic start among those without coverage and spread to the rest of the population?  There is no invisible wall that protects the insured population from diseases that begin and spread among those without access to sufficient levels of healthcare. 

As with any significant social or economic change, such as healthcare reform, there are unintended consequences.  These implications often are difficult to foresee.  They are addressed as they arise.  Is the decreasing availability of not-for-profit care one of those issues?  Additional studies and time will tell.

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