Merging Weak Hospitals Equals Sears Plus Kmart Equals Failure

A decade or more ago, the financier Edward Lampert put together two weak businesses, Sears and Kmart. He thought that putting them together would create a strong business. Go figure.

That was at the time when those old businesses were declining. Internet sales, including via the likes of Amazon, were beginning to take off.

Yet, Lampert combined the two businesses only to find out that it did’t save the business. Lampert sold off their flagship line of Craftsman tools. Their stores remained in disrepair. There’s just no advantage to the business anymore, but yet it continued to hobble along into, and now out of, Chapter 11 Bankruptcy as a mere shadow of what the two businesses once were.

How different is that from hospital mergers in which CEOs and boards and others think that combining two weak hospitals will yield one that’s strong? Or even that one weak hospital can be saved by merging it into a strong facility?

How can most hospitals continue when procedures are being pushed out to ASCs and to other freestanding facilities? How can those hospitals continue to combine to form larger facilities with more beds? How can hospitals continue to acquire physician practices when all the evidence shows that hospitals lose money when they acquire physician practices.

I don’t know.

Maybe it’s the fact that people look at quarterly returns. Maybe it’s that CEOs think that mergers will make them momentary stars and that they themselves will be moving on to other ventures by the time that the deal fails.

It makes you wonder whether these larger-than-before entities in healthcare will survive at all when, eventually, as with Sears and Kmart, the shit hits the fan and returns are no longer possible.

But what does this mean for physicians?

On the one hand, as physicians became more tightly entrenched with hospitals and permitted themselves to become seen as “vendors” as opposed to partners, they increased the fragility of their hospital-linked future. Goodbye hospital equals goodbye practice.

On the other hand, telling the truth about your current situation allows you to prepare for a post-hospital future. What are your, yes, your, alternatives? What will you do if the hospital closes? Will you relocate? Will you re-group and remain in the community? Will you take advantage of the fire-sale of hospital property, perhaps ripe for re-purposing as a medical mall, an ASC, an so on?

There were both losers and winners in the Sears debacle. The number of combined Sears and Kmarts is shrinking to around 400, down from 1,672 just three years ago. That’s a lot of disappointed landlords and thousands upon thousands of out of work employees. But toolmaker Stanley Black & Decker walked away with the prize Craftsman brand and is already expanding its business.

Winner or loser? What sounds better to you?

Comment or contact me if you’d like to discuss this post.

Mark F. Weiss

www.advisorylawgroup.com

Leave a Reply