Local health care companies seeking partners in wake of ‘Obamacare’

Growing M&A wave driven by multiple factors

Nashville health care companies examining the impact of so-called Obamacare seem to agree on one thing: The industry is favoring partnerships and joint ventures over “going it alone” as they deal with the new legislation.

So said many of the merger-and-acquisition evangelists who gathered recently at the Gaylord Springs Golf Links for the fifth annual Health Care Deal Making Summit. The confab discussed, vetted or otherwise attempted to draw some conclusions about the impact of the Affordable Care Act and the nation’s budget crisis — which many folks say is essentially a Medicare crisis — on an industry not used to waiting for government to take action.

The gathered experts, representing a number of the country’s powerhouse health care organizations, delivered a message that there’s strength in numbers and that operating alliances are the way to go in an environment as tricky as it is opaque.

“Financially stable hospitals historically have made the decision to be ‘stand-alone,’ but now they’re looking for someone to provide capital and expertise,” said Howard Wall, executive vice president of Brentwood-based RegionalCare Hospital Partners.

And Wall said the dynamic doesn’t just apply to hospitals. All of tertiary services hospitals offer — surgery and imaging centers, physician clinics and the like — are part of the M&A conversation. Historically, these services weren’t core to the negotiation. Now they’re critical.

“I’ve never seen this many quality assets looking for some kind of joint venture,” said Dan Slipkovich, Capella Healthcare’s co-founder, chairman and CEO, at the deal summit.

James Hoffman, Iasis Healthcare senior VP and business development officer, said that this is the industry’s fourth significant selling cycle since 1982. The marked difference between this one and its predecessors is the financial viability of the players involved. Financial distress is no longer a precursor to negotiation.

Which raises the question: Why?

There is no one short answer, and it’s almost as if the prevailing zeitgeist is the culprit. There’s an insecurity bred from circumstances both broad — such as the still-sluggish economy, the nation’s budget crisis and the pending “fiscal cliff” — and industry-specific. Companies are still evaluating the new taxes originating from health reform, reimbursement cuts from Medicare related to readmissions rates and the need to spend on new technologies and facilities. All these factors are coalescing and driving operators to the negotiating table sooner rather than later.

Local companies have been benefactors of that: Brentwood-based LifePoint Hospitals has had a number of early successes and been able to acquire or lease hospitals in North Carolina, Virginia and Michigan via its partnership with Duke University. This summer, Iasis teamed up with a Wisconsin-based health system to acquire and build facilities in the Upper Midwest.

More recently, Burton Hills-based Vanguard Health Systems said it was in talks with Tufts Medical Center in Boston to try to consolidate parts of the Massachusetts health care market. Vanguard executives also have been working to expand their insurance offerings in New England, Chicago and elsewhere to help them meet newly mandated patient care quality standards. On top of that, their Detroit-area organization was tapped by regulators to be one of only a few dozen Pioneer Accountable Care Organizations, entities that bring together providers of primary and acute care as well as insurers.

If it all sounds confusing, well, that’s because it is. Keeping up with legislative changes is a fact of life, and a cost that health care providers will continue to bear. And this goes back to the aspect of size: More heft means you can better afford, at least in theory, the talent and the technology it will take to remain in compliance and in the black.

Smaller providers, even if they’re financial healthy now, will have a tough time keeping up — but a little easier time finding potential partners.