In this episode

Nick Healey, a partner at Husch Blackwell focusing on healthcare mergers and acquisitions, discussed learnings from years of  advising hospitals, clinics, FQHCs, and safety net organizations in the Mountain West as they evaluate the potential impacts of merging or being acquired. In this episode, Healey explains the pressures rural hospitals face, why many still push to stay independent, and what structures can help them do so:

• Rural providers face unique challenges tied to distance, staffing, and the high cost of bringing in specialists for their communities.
• Community expectations and organizational culture drive many rural hospitals to stay independent, even when consolidation pressures grow.
• Certain structures—like special districts, county ownership models, and hub-and-spoke affiliations—can help organizations that want to stay independent.

“Rural healthcare organizations are being pretty creative in finding what works for them and building resilient facilities to serve their communities.”

– Nick Healey

Key takeaways

Healey covered the challenges, opportunities, and considerations healthcare organizations often weigh when faced with the potential for M&A. Here’s what he said:

Rural providers face unique challenges tied to distance, staffing, and the high cost of bringing in specialists for their communities.

Healey described the unique realities of rural healthcare, especially in the Mountain West, where towns might be hundreds of miles apart. Budget and staffing challenges across the entire healthcare industry hit rural hospitals especially hard due to more pre-existing challenges, making a merger or acquisition a common consideration.

“It’s easy to say staffing [as a key challenge affecting healthcare providers], but finding the right people to provide care in a rural environment takes a different mindset,” Healey said. “The costs of providing care in a frontier environment are challenging…so many rural providers are having to cut labor and delivery services due to staffing,” he said.

At the same time, as demand grows for more services close to home, hospitals are expanding where they can. Healey noted that aging patients might not be able to travel several hours for specialty care, pushing smaller hospitals to expand their service lines or build more outpatient clinics.

Community expectations and organizational culture drive many rural hospitals to stay independent, even when consolidation pressures grow.

Healey said that the strongest force pushing rural hospitals to stay independent is local loyalty. These organizations are often county-owned, district-owned, or long-standing nonprofits. “They tend to be very, very responsive to the community itself,” he said. “They really are responding to the the needs of their neighbors, the people they see in the grocery store. I think the biggest reason is really because that these hospitals want to stay independent because it’s the best way to serve their community and remain responsive.”

For these organizations, Healey acknowledged that joining a larger organization can have downsides for an independent, community-focused hospital. “A lot of them do end up as a spoke on a tertiary care center’s hub. And [sometimes] the hub is not particularly responsive to their needs. And leaders might be in the grocery store aisle talking to their neighbor and having to answer for decisions that are made in Denver, Salt Lake, Billings, Rapid City, or even further away.”

But Healey also noted that the independent culture of these rural organizations can be an advantage in M&A negotiations, and that the right structure can empower the smaller organization with the resources they need while keeping decisions mostly local. “With a hub and spoke model…as long as the rural hospital has good advice on the front end in terms of recognizing what you’re potentially giving up, that can be very successful,” he said. ” Some of these tertiary care centers want to have a very strong hand in running the outlying facility, but [in a lot of cases] the rural hospital tends to have a lot of input at the front end on how those affiliations are structured. They can be pretty successful because the rural hospital gets to write its own ticket in a lot of respects.”

Certain structures—like special districts, county ownership models, and hub-and-spoke affiliations—can help organizations that want to stay independent.

Healey outlined several structures that can keep hospitals independent while giving them needed stability. Special districts are one model. These allow hospitals to tax local property and create a funding source that is “a little bit decoupled from what goes on in the healthcare industry in Washington.” Elected boards allow the organization “to be more community-oriented and get direct feedback from the community,” Healey said.

County-owned hospitals can work well too, as long as county priorities don’t interfere with daily operations. Other hospitals use hub-and-spoke agreements with tertiary centers. These deals can provide visiting specialists or support with billing, compliance, or credentialing. A final option is leasing hospital assets to a private company with detailed performance metrics. If the company does not meet those measures, the hospital can take assets back. This approach “keeps the tertiary care centers or private companies honest,” but requires expertise to track the right metrics.

Across all models, Healey said leaders need two things: a strong CFO who truly understands rural care and a deep connection to their community. He emphasized that rural healthcare is significantly different from a large metro area, and these models “require a significant level of expertise on the part of the governmental entity or nonprofit corporation that owns the facility because they need to know what performance metrics should be, and what to ask in the first place,” Healey said. When looking for a CFO, Healey cautioned that deep experience with rural care is a must. “There’s a lot of facilities that’ll have nationwide talent searches for key positions, and it’s really hit or miss.” His biggest piece of advice for rural organizations considering one of these models is to focus on their communities, get feedback, and do a good job of the basics.