The Pros and Cons of Mergers and Acquisitions
Review the following scenario:
You are the chief executive officer (CEO) of a 200-bed nonprofit community hospital that serves a rural community with a population of 50, 000. The demographics include a median household income of $38,000. Currently, slightly less than half of the population (45%) has employer-sponsored insurance, with 35% having a combination of Medicare and private supplemental insurance and the remaining 20% being uninsured. The population is aging, with 40% of the population expected to reach Medicare eligibility age within the next 5 years, where employer-sponsored insurance will shift to Medicare or a combination of Medicare and other supplemental insurance.
A group of internal medicine physicians specializing in geriatric medicine, including joint replacement surgeries, is looking to expand their services. The physician group has approached the hospital about merging their services with the hospital and expanding the hospital to include an ambulatory care center and outpatient surgical center.
Based on your analysis of the scenario, explain the potential risks and benefits of the merger. Be sure to address the following:
• What, if any, opportunities are there for cost control if the decision to merge with the physician group is made by the hospital?
• What are some of the changes in Medicare reimbursement that could affect the long-term success of the merger?
• Would the community hospital be better served by countering the physician group’s offer to merge with the hospital or would acquiring the physician group better serve the hospital’s interests?
• Describe any ethical considerations that could influence the CEO’s decision.