2018 M&A in Review
Converging Strategies of For-Profit and Not-for-Profit Health Systems
Strategic Insights: For-Profit/Not-for-Profit Strategic Convergence
As the line between for-profit and not-for-profit systems blurs, hospitals and health systems should:
  • Seek out models that effectively combine the operational efficiencies of high-performing for-profit systems with the community benefit focus of not-for-profit systems.
  • Reevaluate their growth strategy with an eye to markets with strong demographics and business growth opportunities.
Activity within the for-profit health system market looks increasingly like activity on the not-for-profit side. Some systems are retreating from a growth strategy that produced widespread geographic coverage, but insufficient depth in individual markets. Some systems are merging to achieve greater scale. And some systems are pursuing a targeted growth strategy. HCA, which plans to expand into North Carolina with the acquisition of Mission Health, is benefiting from strength in both its operating model and its portfolio. As the nation’s largest health system, with 178 hospitals and more than $43 billion in annual revenue, it has been able to achieve the operational efficiencies that other health systems are seeking as they increase scale. It has also focused on being one of the top two health systems in the markets it has entered, and has chosen markets where populations are growing and unemployment rates are low, thus enabling further business growth.9
HCA’s bid to acquire Mission Health also demonstrates how the line between for-profit and not-for-profit healthcare is blurring. If the Mission Health acquisition is approved, the system will move from not-for-profit to for-profit status. But an estimated $1.5 billion in proceeds from the sale will fund the Dogwood Health Trust, a not-for-profit foundation that will support health and well-being initiatives for people and communities in western North Carolina. Once operational, it is expected to be one of the three largest foundations in the state, generating between $50 million and $100 million in annual income to fund initiatives for the communities within Mission Health’s geography.10
For the communities served, the tax status of the local hospital matters far less than the care provided. For the hospitals and health systems providing that care, the significance of tax status and differences in strategy are also diminishing. HCA’s combination of scale, operating efficiency, community service, and strategic market growth is an attractive model for not-for-profit and for-profit systems alike.
10 - Davis, D.: “Mission Launches Dogwood Health Trust for Proceeds of Proposed HCA Deal.” Asheville Citizen Times, July 16, 2018. https://www.citizen-times.com/story/news/local/2018/07/16/mission-laumission-launches-dogwood-health-trusnches-dogwood-health-trust-proceeds-proposed-hca-deal/787815002/
9 - Livingston, S.: “HCA’s Success over 50 Years Banks on Sticking with the Basics.” Modern Healthcare, Oct. 6, 2018. https://www.modernhealthcare.com/article/20181006/NEWS/181009941/hcas-success-over-50-years-banks-on-sticking-with-the-basics
©2018 Kaufman, Hall & Associates, LLC
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2018 M&A in Review
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