“Fixing Our Ailing Healthcare System – Private Equity, M&A To The Rescue?”

          Obama's passage of healthcare reform was not only a boon to those without insurance but will also be for hospitals that previously cared for those patients without any recompense, particularly in the emergency department. We need to look no further than our backyard and see the recent deals by Cerberus Capital Management's affiliate purchasing Caritas Christi for $830M (plus $400M in capital upgrades) and subsequent purchase of several other hospitals in the New England area. If you need further proof just look at Vanguard Health Systems Inc. (2/3 owned by the Blackstone Group) acquisition of Detroit Medical Center for $417M (plus $850M in capital improvements).

          What is it they are seeing that others aren't? Previously non-profit hospital were out of play, no one wanted to go near such a money losing proposition, but with new medical insurance laws coming online these previously pariahs are now being viewed as messiahs. On top of that packages for capital upgrades of substantial size are being attached to these deals indicating these are longer terms deals, not your typical 3-5 year cycle often seen the in private equity world.

          So what is it exactly that organizations like Cerberus Capital Management and Vanguard Health Systems see in these deals? “The fact that these two hospitals, which have struggled over the years and are situated in markets with lower incomes and higher uninsured patients, are targets of takeovers suggests [private companies] are looking at these types of systems as being beneficiaries under the new rules,” said Richard Ciccarone, head of municipal research at McDonnell Investment Management. With 40 million uninsured patients gaining access to insurance we think they are right.

          Going forward it will be necessary to finally tackle the cancer that has plagued our healthcare systems for years and that is cost. With Bush's push for EMR by 2014 we have already seen a surge in interest in healthcare IT organizations but the push for efficiency and cost-cutting in the industry will only accelerate this interest.