Hospitals aren't the only players anymore in an increasingly competitive acquisition landscape. Independent physician groups, private equity firms and other financially-backed organizations are giving hospitals a run for their money. Hospitals need to start thinking strategically to remain competitive.
"You're seeing a lot of new participants from the market and people to compete with the hospitals," says John Reiboldt, managing director of Alpharetta, Ga.-based Coker Group, a national healthcare advisory firm. Mr. Reiboldt spoke on the evolving acquisition market at Becker's ASC Review 22nd Annual Meeting — The Business and Operations of ASCs.
Traditionally, the market cultivated a template for hospitals and ASCs to follow when entering transactions.
A group of physicians decides something needs to change in their ASC or a hospital approaches a physician group. The physicians meet with the hospital's CEO, who explains the legal and regulatory processes.
"The hospital comes back with a low offer based on acquisition and mandatory employment and very little thought as to how this can benefit the group and hospital," explains Mr. Reiboldt. "[There is] minimal to no negotiation and little to no value created for the hospital or doctors."
But times are changing, and ASCs have other options outside the realm of hospitals when considering selling or partnering. More entrepreneurial physicians are looking to create value and won't be forced into unfavorable deals with hospitals.
To keep their edge in the market, hospitals should strategize how to actually make money from an acquisition — there needs to be a return on investment. The first step of this strategy involves making allies out of physicians, not enemies.
"There's always been this level of distrust, but a really good hospital will go to these doctors and really create a relationship with them," says Mr. Reiboldt.
Hospitals should consider how collaborating with particular physicians fosters geographic growth. The new multi-faceted approach begins much the same way as the traditional approach. A physician group decides they need to do something about their ASC, but this time they hire an advisor to scout the field.
"[Advisors] can give you a snapshot of the market — who are the people out there buying, who are the people out there making investments?" says Dr. Reiboldt. Advisors provide insight into strategic alternatives, so an organization makes the best possible transaction. Aided by their advisors, these physician groups will now approach a variety of buyers, including local hospitals.
"If you have optionality, optionality creates opportunity to create value," explains Mr. Reiboldt. By approaching multiple buyers, these physician groups force hospitals to participate and compete in a competitive process, resulting in more proactive and beneficial deals.
"Some hospitals are woefully unprepared that doctors are going to different entities for possible transactions," explains Mr. Reiboldt. Successful hospitals recognize they are not the only viable business option anymore, and adjust their offers and expectations to remain in the game.
With proper preparation, an ASC offers an attractive structure to the market, and hospitals will want to buy in. Ultimately, some flexibility creates an ideal transaction.
"At the end of the day, what you're really trying to do is create value for both sides," says Mr. Reiboldt.