Merger Analysis in Healthcare Industry

Merger Analysis in Healthcare Industry

Introduction

Today is the era of globalization; many organizations are merging and acquiring new businesses. The reasons to merge can be so many, some organizations are merging with other organization for the sake of diversification, and some are merging because of lack of resources, some to become the cost leader, and some to survive in the industry. But whatever the reason is it is found that mergers are usually become successful when made after critical analysis. There are so many mergers in many industries which are failure because of insufficient planning. It is not necessary that an organization can only merge with another organization of the same industry; it can go beyond the limits. Mergers are aimed to create synergies. It is an underline assumption behind the theory of merger that two firm when merge together can create impact of more than two firms. Merger can be vertical or horizontal in nature, if an organization merges with the distributor or supplier of the company then this type of merger will be called as the vertical merger, similarly if a company merges with two companies competing in the same market merge (Huang & Finegold, 2013).

Mergers in healthcare industry are not very often. According to the definition of United Nations, healthcare industries consist of three main components which are hospital, medical & dental and other medical activities. If we talk about particularly the healthcare industry of USA, then in USA most of the healthcare organizations are owned by the private sector. It is also found that more than 70% of the population of the country who are under 65 is insured by their employers. According to the statistics of WHO, the country spends more than 15.2% of the GDP for the healthcare industry which is the highest spending of any industry in this particular industry. The unfortunate thing is that United States does not guarantee the access to healthcare facilities to its residents, which is the reason why most of the people file bankruptcy because they were unable to afford medical expenses. The lack of insurance policy in the country causes the deaths of more than 49,000 people in a year (Connor et.al, 1997).

Discussion

Spang, Bazzoli & Arnould, (2001) conducted a research in which they found that most of the mergers in the healthcare industry result in the savings for consumers. Publically held hospitals mergers increased in 80's. There were more than 180 mergers in the decade of 1980 and 176 were in 90's. This increase in merger is aimed to increase the efficiency of hospital and at the same time reduce the cost for serving a patient. In United States, mergers of hospital are allowed by the court just for the argument to cost saving.

There are several methods for conducting a merger analysis for healthcare industry. One of them is to evaluate the cost and benefit analysis of potential merging companies, before and after the merger. Since this is a hypothetical merger therefore ...