Assessing Independence

Assessing Independence CoverSeveral recent surveys indicate that nearly 80 percent of non-profit hospital boards are assessing their independence. This means they are determining whether to affiliate, combine, or remain independent. Only 15 percent of boards were considering this a few years ago. This is the Affordable Care Act’s (ACA) greatest impact on non-profit hospital boardrooms today, and much more so than the “flood” of mergers widely described in periodicals.

In September 2014, a New York Times article described the FTC’s wariness of mergers amongst hospitals.¹ In this, an economist suggested that the ACA has “unleashed a merger frenzy” and that she saw antitrust enforcement as a tool to slow the “march toward conglomeration.” Perhaps these assertions were intended to be forecasts. In any event, they are very common misstatements. In fact, mergers are being completed at a tepid rate of 70 to 80 small transactions per year, far below the annual rate of nearly 150 in the early and mid-1990s. The hospital industry remains the most fragmented major industry in the U.S.

This article focuses on the disconnection between the much-discussed and presumed impact of the ACA, or the “merger frenzy,” and actual market developments. The significance of the large proportion of hospitals that are considering their independence has been largely ignored, along with most of the issues associated with this. As a starting point, we will review the reasons boards are studying their independence, the approaches they are taking, the role of governance, and common missteps that are occurring.

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