Becker's Hospital Review

23 CFO / FINANCE 4 Hospital Deals to Watch in 2018 By Alyssa Rege H ospital merger and acquisition activity has steadi- ly risen in recent years — and 2017 was no dif- ferent. However, last-minute transactions an- nounced in November and December may lead 2018 to be a record year for deal volumes as hospitals and health systems team up with organizations inside and outside the industry to combat decreasing reimbursements and payment reform. Here are four hospital transactions to watch in 2018. 1. Beth Israel Deaconess and Lahey Health Boston-based Beth Israel Deaconess Medical Center and Burlington, Mass.-based Lahey Health signed a proposed merger agreement in January 2017. ree other health or- ganizations also signed on to the proposed deal, which is poised to create a 13-hospital system and would become one of the largest hospital transactions the state has seen. However, the Massachusetts Health Policy Commission announced plans to review the deal further, stating the transaction "represents the most significant change in the structure of the Massachusetts healthcare market in more than 20 years, and it will further consolidate our health- care market into a small number of major systems and a declining number of independent community hospitals." 2. Dignity Health and Catholic Health Initiatives San Francisco-based Dignity Health and Englewood, Colo.-based Catholic Health Initiatives signed a deal to combine operations in December, which officials antic- ipate closing during the second half of 2018. e com- bined entity will comprise 139 hospitals across 28 states and more than 700 care sites. In addition to federal and state regulatory approval, the proposed merger must also garner approval from the Catholic Church. 3. Partners HealthCare and Care New England Health System Boston-based Partners HealthCare signed an acquisi- tion agreement with Providence, R.I.-based Care New England Health System in April. However, negotiations regarding the proposed deal have been pushed back to Jan. 31 for various reasons, including Partners' concerns regarding CNE's financial situation. CNE officials have expressed optimism regarding the proposed deal. 4. Providence St. Joseph Health and Ascension A Dec. 10 report by e Wall Street Journal fueled specu- lation of a proposed merger between St. Louis-based As- cension and Renton, Wash.-based Providence St. Joseph Health. Experts suggested the merged entity would com- prise 191 hospitals across 27 states and earn an annual revenue of $44.8 billion. If successful, the combined Prov- idence St. Joseph-Ascension organization would surpass the nation's largest hospital operator, Nashville, Tenn.- based HCA Healthcare, which owns 177 hospitals and reported $41.5 billion in revenue at the end of 2016. n Moody's: 3 Ways the GOP Tax Law Will Hurt Nonprofit Hospitals By Ayla Ellison T he Republicans' tax overhaul plan, signed into law in Decem- ber, has negative credit implications for nonprofit hospitals and health systems, according to Moody's Investors Service. Here are three ways the tax law will hurt nonprofit hospitals and health systems. 1. The tax law repeals the ACA's individual insurance mandate. This will cause the uninsured population to rise and raise uncompensated care costs, which will negatively affect healthcare organizations' oper- ating margins and cash flow, according to Moody's. 2. The tax plan's limits on tax-exempt refundings is negative for all issuers of tax-exempt debt, including nonprofit hospitals and health systems, as these financings have been used to reduce long-term borrowing costs and take advantage of lower interest rates, accord- ing to Moody's. 3. The tax law slashes the corporate tax rate to 21 percent from 35 percent. This change has negative implications for nonprofit hospitals and health systems, as it "makes tax-exempt bonds a less attractive investment for banks and other financial institutions, which will weak- en demand, especially for direct bank loans and private placements," according to Moody's. n S&P: Outlook Is Stable for Nonprofit Hospitals By Ayla Ellison S &P Global Ratings affirmed its stable outlook on the U.S. nonprofit healthcare sector for 2018. "Our view is based on the overall strength of balance sheets in the sector — which are at, or close to, historical highs — combined with a long-term trend of market consolidation, physician integration, and expanded ambulatory presence, which has improved the business positions and future prospects for many rated organizations," said S&P Global Ratings credit analyst Martin Arrick. Although S&P expects most of its rated nonprofit hospitals and health systems to maintain credit quality in 2018 due to balance sheet and business profile strengths, the rating agency believes operating risks for some nonprofit healthcare organizations will intensify. Changes in the municipal bond market that will make providers' cost of capital higher and recent legislation to eliminate the ACA's individual man- date will likely put financial pressure on hospitals and health systems, according to S&P. "We expect rating affirmations will continue to dominate all other rat- ing actions, which is demonstrated by the growth in stable outlooks to 82 percent from 80 percent in [2017]," according to S&P. "However, downgrades — which exceeded upgrades in 2017 for the first time since 2014 — are expected to grow in 2018 for organizations already under pressure." n

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