[January 23, 2013]

Fitch: U.S. Hospital Consolidation Activity Hits High in 2012 Spurred By Healthcare Reform

Healthcare reform and changing reimbursement methodologies are dramatically altering the landscape for U.S. nonprofit hospitals, driving the highest consolidation activity since 2000 and increasing the focus on the operating environment and efficiencies, according to a new Fitch Ratings report.

'While traditional factors such as economies of scale, access to capital and market share continue to play a role in hospital consolidation, a Fitch survey revealed strategic considerations and preparation for healthcare reform were the primary drivers in 2012 - leading to consolidation activity not seen in over a decade,' said Adam Kates, Director in Fitch's Public Finance group.

Expected reimbursement reductions and changing reimbursement methodologies are forcing providers to operate more efficiently and improve coordination across the continuum of care.

Providers are also increasingly exploring new consolidation and alignment strategies with other hospitals, physicians, and insurers.

The implementation of new strategies, while potentially positive, introduces execution risk. Hospitals have been taking steps, including strategic partnerships and incremental adoption of new operating models, to mitigate some of the execution risk.

Given the capital resurces and managerial expertise new alignment strategies require, the credit-metrics gap between lower rated and higher rated hospitals is expected to continue to widen.

For more information, see Fitch's special report titled 'Nonprofit Hospital Consolidation, Integration and Alignment' available at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research: Nonprofit Hospital Consolidation, Integration, and Alignment

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=698854

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