Published in Journal of Health Care Compliance
Hardly a day passes when the press doesn’t report on a new merger or acquisition in the health care sector. The trend toward consolidation in creating larger systems with a wider array of services has been dramatic over the last decade. Some mergers and acquisitions (M&As) are monumental in scope, but most relate to individual hospitals, facilities, or entities.
This continuing trend is evidenced by annual surveys of Hospital Mergers Acquisitions, which in 2012 found number hospital deals climbing more than 18 percent to 109 in 2012, up from 92 deals recorded for 2011.  This trend is likely to continue and is stimulated by health care reform and the Affordable Care Act (ACA) that will likely result in more consolidation and integration among hospitals and physician practices.
The simple current reality is there will be relatively few hospitals that remain independent in the coming years. The vast majority will merge, be acquired, or enter into an affiliation or joint venture agreement. The driving forces include seeking economy of scale, better meeting new regulatory challenges, expanded capability in providing patient care, gaining from shared services, and expanding their market geographically.
FINANCIAL AND LEGAL DUE DILIGENCE
Due diligence reviews are an integral part of all health care mergers and acquisitions. They provide a vital tool to help organizations assess the potential liabilities in M&A transactions. In most industries, there are two common types of due diligence: financial and legal. They generally focus on financial accountability and legal liabilities. The overall objective of due diligence is to understand the financial viability of the organization or entity involved in M&A — and its compliance applicable laws, regulations, and disclosure obligations. This should be part of every acquisition in determining risks and exposures as well as establishing a future defence in case a problem emerges subsequent to closure on the deal. The fact that one out of four intended M&As did not take place, after letter of intent, can be attributed in large measure to the results of due diligence reviews.
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