Center for Healthcare Economics and Policy 1

Center for Healthcare Economics and Policy 2

Center for Healthcare Economics and Policy

Hospital Mergers and Acquisitions: 2007-2012

April 2013

Center for Healthcare Economics and Policy

Overview

The Center for Healthcare Economics and Policy (“Center”), a separate business unit in the Economics Practice of FTI Consulting, Inc.*, was commissioned by the American Hospital Association to conduct this study of mergers and acquisitions over the last 6 years (2007-2012). The study uses information from:

Irving Levin Associates, Inc, including The Hospital Acquisition Report 2012

Modern Healthcare, Hospital Mergers and Acquisitions Reports, 2007-2012

American Hospital Association, Healthcare QuickDisc, 2008, 2010, 2011

Center for Healthcare Economics and Policy, proprietary research

* The study was conducted by Margaret E. Guerin-Calvert, President and Senior Managing Director, Senior Consultants, Eliot Davila, Colin O’Laughlin and Consultant, Russell Keathley.

4

Center for Healthcare Economics and Policy

Number of Transactions and Hospitals Involved in Them Per Year 2007-2012

5

From 2007 to 2012, there were 316 transactions involving 551 acquired hospitals The average number of acquired hospitals per transaction was between 1 and 2

Note: Reported transactions exclude acquisitions by private equity firms or physician groups, vertical transactions, abandoned transactions and other non-hospital-to-hospital transactions. It does include pending transactions.

Acquired Hospitals

YearNumber of

TransactionsTotal

HospitalsAverage Number of

Hospitals Per TransactionTotal 316 551 1.72007 45 111 2.52008 46 52 1.12009 36 61 1.72010 49 90 1.82011 69 107 1.62012 71 130 1.8

Center for Healthcare Economics and Policy

Frequency of Transactions by Number of Acquired Hospitals 2007-2012

The majority of transactions between 2007 and 2012 involved a single acquired hospital

6

Center for Healthcare Economics and Policy

Proportion of All Transactions where there was an Overlap in One or More MSAs*; 2007-2012

7

*Note: The term ‘MSA’ denotes either a metro- or a micropolitan statistical area

An MSA overlap occurs when both parties are in the same MSA The proportion of transactions that resulted in at least 1 MSA overlap fell from

approximately 60% in 2007 and 2008 to less than 35% in 2012

Center for Healthcare Economics and Policy

Percentage of MSA* Overlaps Occurring in MSAs with More than 4 Competitors (162 MSA Overlaps in 153 Transactions); 2007-2012

More than 91% of the overlaps were in MSAs with more than 4 competitors

8

*Note: The term ‘MSA’ denotes either a metro- or a micropolitan statistical area

Center for Healthcare Economics and Policy

Percentage of MSA* Overlaps Occurring in MSAs with More than 5 Competitors (162 MSA Overlaps in 153 Transactions); 2007-2012

Almost 90% of the overlaps were in MSAs with more than 5 competitors

9

*Note: The term ‘MSA’ denotes either a metro- or a micropolitan statistical area

Center for Healthcare Economics and Policy

Overlap MSAs* with 5 or Fewer Competitors (20 MSAs): MSA Population and Count of Overlaps; 2007-2012

20 MSA overlaps occurred in MSAs with 5 or fewer competitors 16 of these 20 MSAs had populations of less than 200,000

10

*Note: The term ‘MSA’ denotes either a metro- or a micropolitan statistical area

Center for Healthcare Economics and Policy

Distribution of Acquired Hospital Size in the 20 Overlap MSAs* 2007-2012

11

*Note: The term ‘MSA’ denotes either a metro- or a micropolitan statistical area

Center for Healthcare Economics and Policy

Distribution of 20 MSA Overlaps by State and Year

12

State Year Acquired Hospital Bed SizeGeorgia 2011 41Louisiana 2008 171Michigan 2007 181

2008 992010 34

Minnesota 2011 852012 134

New Mexico 2011 12New York 2009 199North Carolina 2008 25Ohio 2010 25Oklahoma 2012 45Pennsylvania 2007 200South Carolina 2007 41Tennessee 2012 118Texas 2007 50

2009 120Virginia 2008 135West Virginia 2010 435Wisconsin 2011 25