Getting Bigger

February 2012

In her role as vice president of rural services for Mercy Health System of Oklahoma, it’s Cindy Carmichael’s job to expand the system’s presence across the state.

And over the last two years, she has done exactly that.

“It hasn’t been Mercy doing sales calls,” Carmichael says. “It’s them coming to us. Every community’s reasons are different.”

In that time span, Mercy has entered rural Oklahoma in a variety of ways. The system affiliates with a few facilities, manages some and leases others from a community where the bottom line becomes Mercy’s.

Twenty-five-bed, critical-access facilities in Healdton, Tishomingo, Sulphur, El Reno and Watonga all have brokered affiliations with the health system, as well as a 125-bed hospital in Ada.

While declining to disclose the exact number of transactions over the last two years, Carmichael admits the number approached double digits.

“We have seen a lot of growth,” she says. “The driver behind that growth is these smaller facilities have a hard time standing on their own. They look to become part of a larger system to provide stability, streamline operations and have resources.”

With 30 years at the law firm of Crowe & Dunlevy, Karen Rieger specializes in transactional health care law, and says the last few years have seen a sharp rise in the number of mergers and acquisitions.

“I think it’s a couple of things,” Rieger says. “There continues to be a squeeze on reimbursement and keeping costs down, and I think some of it is because it’s such a capital-intensive business. I think particularly for smaller, rural hospitals, they just don’t have access to capital. They just don’t have enough of a revenue stream to be able to keep their facilities up to date.”

She recently worked on a transaction that helped Logan County sell its hospital to Mercy.


Norman Regional purchased a bankrupt Moore Medical Center in 2007. The third attempt at placing a hospital in the bedroom community and its ensuing sale gave Norman Regional the opportunity to grow into a health system.

“To us, it just made sense to bring that facility into our organization and try to offer a higher level and more varied amount of services to people in northwest Cleveland County and Moore,” Norman Regional CEO David Whitaker says. “It’s been very beneficial in terms of growth for our organization.”

Moore Medical Center’s ER visits topped 35,000 last year, and outpatient services have continued to grow, he says.

“Looking back now, that was a very good decision, in terms of growing the service side of our health care business,” he says.

And it’s all about business and how it will change under the Affordable Care Act.

Undeniably, it will change the way health care is delivered in the future. And accountable care organizations, comprised of physicians and ancillary service providers, will be responsible for a defined set of Medicare patients.

Instead of a fee-for-service type of reimbursement system, the government now will bundle payments based on health care outcomes.

If that sounds vague and amorphous, Whitaker agrees.

“This increase in the [merger and acquisition] activity is a natural offshoot of kind of that unknown,” he says. “We know for [accountable care organizations] to be successful, it’s not going to be about how many procedures you do anymore, but it’s going to be about what type of care you deliver and what the outcome is. Everyone is under pressure to drive as much excess cost out of your operations and, at the same time, smaller organizations are asking how can they compete in such a regional competition for delivering these services if they’re a stand-alone facility.”

Whitaker says hospitals that have been owned by communities for 50 or more years are looking for ways to ensure they will still be there in the future.

Expect more in 2012. Becker’s Hospital Review, an industry publication tracking demographics and trends, says the merger and acquisition activity in 2011 was the most in more than a decade and should continue in 2012.

“I think it’s a natural progression that you see smaller organizations considering who they need to partner with, and the larger organizations who have the momentum and the capital to form these organizations are looking at who they need in this network in order to be able to cover the maximum number of patients in a defined area,” Whitaker says.


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