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AHA Guidelines on Hospital Ownership Changes

By January 25, 2012Commentary

Hospitals have fingered as the source for a large portion of the continued growth in health spending, both in outpatient and inpatient care.  Consolidation of the industry has given rise to greater market power and at the same time, some struggling hospitals, especially not-for-profit or public ones, have been acquired by for-profit entities.  So concerns have been raised not just about the effect of these ownership changes on cost, but on quality and access to care as well.  The American Hospital Association has responded by releasing “Principles and Guidelines” regarding ownership changes.     (AHA Guidelines)

The Principles suggest that hospitals should always be cognizant of their mission to the community and that the hospital’s directors should be aware of their fiduciary duties to ensure that any change of ownership is consistent with the hospital’s mission.  The questions that AHA recommends directors and management consider include the reason for the transaction, its political consequences, how it will be received by the provider community and how it will affect medical care.  Some suggested steps for creating a smooth transaction process include engaging the affected communities to ascertain their perception of needs in the community and how the change in ownership will affect those.

The affected communities include medical staff, employees, major employers or business coalitions, payers, labor unions, if any, and of course, patients.  The acquiring or merging party should be thoroughly checked out, including an assessment of value similarity and past similar transactions.  The fit with current strategic objectives needs to be evaluated as well.  An antitrust assessment may be needed and if the hospital is non-profit, assets may need to be valued and a charitable trust set up.   Finally, the community needs to be educated about the rationale for the transaction and all affected parties have their concerns assuaged.   Pretty much common sense but ignores the major reason for these transactions; someone is trying to figure out how they can charge more for services, and there is nothing in the “Principles” about explaining to the affected community how that is good for them.

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