Mergers Seen as Key to Survival for Community Hospitals

As a representative example of nationwide developments, Community Memorial Healthcenter (CMH) in South Hill, Virginia, is merging with a large partner, Virginia Commonwealth University Health System. The merger, which was announced earlier this month, reflects a growing trend.

Prior to this year, CMH managed to operate for 60 years without a budget deficit in all but one of those years. When the hospital releases numbers for its current fiscal year which ends June 30, the CEO, W. Scott Burnette, is quoted as saying, “It’s not going to be pretty.”

Burnette’s sentiments and comments by other executives and analysts are included in an article published in the April 20 edition of the Richmond Times-Dispatch. A link to the article is provided below.

As noted in the article, the key factors driving consolidation for smaller community hospitals include the following:

1) The hospitals need access to capital to survive
2) Economies of scale are needed to control costs
3) The complexity of government regulations are straining resources
4) Technology requirements are growing in complexity
5) Hospitals are increasingly accountable for the quality of healthcare services
6) Business models are shifting from fee-based to value-based

In a report released by Standard & Poor’s at the end of 2013, the outlook for non-profit healthcare providers was downgraded from “stable” to “negative.” According to the report, “the sector is finally at the tipping point – where an increasing number of organizations will find themselves weighed down by issues that outstrip their ability to implement sufficiently robust positive countermeasures.”

To learn more about these and other issues influencing mergers and acquisitions, including key factors related to Medicare, Medicaid and the Affordable Care Act, see the Richmond Times-Dispatch article at:
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