There’s a new wrinkle in the consolidation wave sweeping across Connecticut’s health care industry.
Out-of-state companies buying medical practices or hospitals in Connecticut isn’t typical and hasn’t risen to the level of a trend, but a few recent deals may indicate that activity is on the rise.
The most recent high profile example is the purchase by Texas-based LHP Hospital Group of a majority stake in St. Mary’s Hospital in Waterbury, a deal which if approved by regulators will convert the 349-bed non-for-profit institution into a for-profit entity.
But quietly, small or medium-size medical groups are getting in on the action as well. In December, for example, Milford Anesthesia Associates, a 150-employee anesthesiologist group, was purchased by a publicly traded company in Colorado.
And a small Bristol-based hospitalist group of five full-time physicians was bought by a California company last summer.
If such transactions become a trend, they could change the competitive landscape in Connecticut. As local hospital systems continue to try to grow their reach, they may need to increasingly fend off competition from beyond the state’s borders.
“Medicine is no longer just local or regional, it’s national,” said Dr. Jeffrey Wagner, the executive vice president of AnesthesiaCare, which bought Milford Anesthesia Associates in December. “The boundaries of state lines are immaterial.”
Wagner said Milford Anesthesia Associates, which provides services for hospitals and other medical facilities in Connecticut and Massachusetts, sought out a partner because they needed capital to invest in health information technology and infrastructure.
He said finding a local partner would have been difficult since the practice is one of the largest anesthesiologist groups in the state, so they set their sights on a larger, national player.
They eventually signed a deal with AnesthesiaCare, whose Colorado-based parent company Emergency Medical Services Corp., is a major player in emergency medical services across the country.
The deal is allowing Milford Anesthesia Associates to tap into a more robust quality assurance program, including a health information technology system that benchmarks data from 1 million patient visits annually from across the country. Data tracking is a key way health care providers track outcomes and look for ways to improve quality care. And now Milford Anesthesia doesn’t have to spend money on its own IT support staff.
For the buyer, the deal is expected to bring Emergency Medical Services Corp. an additional $40 million in annual net revenue.
“Anesthesiology used to be a mom-and-pop practice, but those days are long gone,” Wagner said. “Everyone agrees what we have is too fragmented and too costly and the only way to survive and grow is to prove you are valuable to the food chain.”
In another recent deal, IPC The Hospitalist Company, a California-based national physician group, acquired the Hospital Internists of Bristol, a group of five full-time physicians who work with Bristol Hospital.
IPC also bought a New London-based practice, which has about 25 doctors, in late 2009.
Rene Toledo, IPC’s executive director, said the Bristol practice was also looking for information technology upgrades, and the deal allows the group to use IPC’s propriety software that provides electronic billing. The software also has features that track clinical data and allow doctors to communicate electronically with other providers.
Toledo said he sees more growth opportunities in Connecticut for his company, which operates in 22 states.
“Independent hospitalist groups are looking at other options for who brings them greater resources,” Toledo said.
Consolidation in Connecticut’s health care industry has been heating up in recent months, as financial pressures related to health care reform, lax reimbursements from government payers and the need to invest in health information technology are making it harder for independent doctors, medical groups and hospitals to do business.
But most of the deal flow has been between in-state health care providers.
This month, for example, The Charlotte Hungerford Hospital in Torrington acquired a four-person cardiology group based in the same town.
And affiliations between Connecticut hospitals have been ongoing for the past few years, with Hartford Healthcare and Yale-New Haven Hospital aggressively trying to grow their regional systems.
Across the country, 458 merger and acquisition deals were announced in 2010 in nine sectors of the health care industry, up 24 percent from 2009, according to Norwalk-based Irving Levin Associates, an industry consulting firm.
That included 73 announced transactions involving 175 hospitals for a combined $12.8 billion. There were also 63 medical group mergers involving 2,370 physicians for $425.4 million. And that deal flow only represents deals that were announced publicly.
Sandy Steever, an editor at Irving Levin Associates, said there is increased activity of national health care practice management companies looking for acquisitions across the country. There are only about 30 or 40 players in the market, but they were really big in the late 1990’s before many of them collapsed amid financial difficulties, Steever said.
Matthew Katz, executive vice president of the Connecticut State Medical Society, said it may be more common for hospitalist groups to seek out-of-state partners than other medical groups, but overall the trend of physician practices in Connecticut getting bought by health care companies outside the state is uncommon.
“They are really far and few between,” Katz said.
Katz said Connecticut is still dominated by small practices, which aren’t typically attractive to companies or corporations looking to expand outside their home state. That will likely limit the number of deals involving Connecticut medical groups and out-of-state companies, Katz said.
Many small practices in Connecticut also still have a “do it yourself mentality,” although there is an increased trend of physician groups joining in-state hospitals or other larger practices, Katz said.
“We are finding in many parts of the state physicians giving up their practices,” Katz said.
A Connecticut hospital being purchased by an out-of-state company is even rarer.
In fact, it’s only happened once, when the ailing Sharon Hospital was purchased by Tennessee-based Essent Healthcare in 2002.
