Rural Hospitals After a Merger

The reality of joining an IDN

By Michelle A. Williams, Industry Analyst, U.S. LifeLine Inc

Rural hospitals face challenges with an evolving healthcare environment, including the current pay-for-performance Medicare and insurance company reimbursement program, data requirements for compliance, and limited revenue growth. ¹ Some opt for a partnership with an IDN, but how does the partnership affect formerly independent hospitals? Does joining a larger healthcare system increase the chances of a rural hospital’s future success and financial well-being? Some rural hospitals are answering yes.

Reasons to partner
Rural hospitals have pursued partnerships with IDNs over the last few decades due to poor financial performance, according to a Rural Health Research Gateway and survey report by Bass, Berry & Sims, both published in 2014.¹, ⁵ Pressure to meet Meaningful Use compliance, new CMS ICD-10 coding regulations, EHR implementation, and staff shortages add stressors to rural hospital operations. ³ IT support is another driver, along with financial stability, in seeking IDN partnerships in 2015.

In some cases, an IDN partnership keeps rural hospitals from reducing services or closing its doors.¹ When a compatible partnership is realized, some of the expected benefits of a merger for former independent hospitals include: ²,⁵

  • Bulk purchasing power
  • Shared IT resources and support
  • Coverage of compliance cost
  • Shared services
  • Capital improvements
  • Debt assumption

Asante Ashland Community Hospital in Ashland, OR is one success story, which merged with Asante Health in August 2013. The hospital reported losses of $4.2 million in FY 2012, $3.6 million in FY 2013, and a reduced $1.5 million in losses for FY 2014. According to a hospital spokesperson, the FY 2015 budget includes a positive operating margin of $100,000 to $200,000. Asante invested in a new computer system, which reduced errors in insurance codes to increase payments. Cost reduction has also been realized in Asante’s bulk purchasing power, procedure changes, electronic equipment improvements, and utilization of the hospital’s untapped resources.² Although Ashland Community’s profit margin increase is minimal, it aligns with typical results from other former independent rural hospitals, according to the Rural Health study.¹

With more than 40 rural hospital closures nationally since 2010⁸, and threats of more to come due to states not expanding Medicaid⁷, hospitals like Cascade Valley Hospital in Arlington, Wash.,⁶ and Doctors Medical Center, San Pablo, Calif.,⁴ are examples of rural hospitals advertising for a partnership with IDNs to save services and avoid closure. Although some rural hospitals fear losing local control and independence⁹, the benefits of financial stability, network resources, capital equipment improvements, and IT resources from IDN partnerships give struggling rural hospitals a chance for survival and continuing critical service to its community.

¹ “Rural Hospital Mergers and Acquisitions – Who is Being Acquired and What Happens Afterwards”, Rural Health Research Gateway, by George Pink, PhD, August 2014.

² “Asante merger stabilizes Ashland hospital’s finances”, Mail Tribune, by Vickie Aldous, December 14, 2014.

³ “Rural Hospitals Face Major Challenges in 2015”, RazorInsights, by J.R. Mitchell, January 13, 2015.

⁴ “San Pablo: Doctors Medical Center, almost out of cash, seeks last-minute deal with city”, Contra Costa Times, by Tom Lockner, February 18, 2015.

⁵”Healthcare & Life Sciences M&A Outlook”, Bass Berry & Sims, MergerMarket, June 2014.

“County’s last independent hospital seeking business partnership”, HeraldNet, by Sharon Salyer, February 20, 2015.

⁷ “Rural Hospital Closures: Tracking Tool Shows IMpace in States Reluctant to Expand Medicaid”, CCF Georgetown University Health Policy Institute, by Adam Searing,

⁸”Rural Hospital Closures: January 2010 – Present”, Sheps Center for Health Services Research, Rural Hospital Closure List, January 25, 2015.

⁹ “Why affiliation may not be the answer for struggling rural hospitals”, FierceHealthcare, by Zack Budryk, February 6, 2015.

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