Hospital Mega Merger
Practice this intermediate merger & acquisition case interview question in the Healthcare sector. Includes detailed problem prompt, clarifying questions, structured framework, and expert recommendation. Part of ProHub's 835+ consulting case library.
ProHub Comment
This case requires candidates to analyze a healthcare M&A opportunity by calculating net operating income (NOI) for both hospitals independently, identifying cost-saving synergies from the merger, and determining whether the combined entity would achieve a target NOI. The case tests both financial modeling skills and understanding of hospital-specific dynamics like service line complementarity and economies of scale.
Estimated Time
26 minutes
Difficulty
Medium
Source
ROSS
10
/ 100
In the face of increasing healthcare costs and decreasing margins our client, the board of trustees for St. Scorekeepers Hospital, is exploring whether a merger would combat market forces. Another local health system also located in Washtenaw county, Mount Ricks Hospital, is a potential target and our client would like to evaluate whether a merger would be beneficial to both parties to combat market forces. What are your thoughts?
Clarifying Information
- Both hospitals have 2 different hospital facilities, all of which are in Washtenaw county
- St. Scorekeepers Hospital has the following departments: emergency, cardiology, OBGYN, and orthopedics
- Mount Ricks Hospital has the following departments: emergency, radiology, dermatology and oncology
- Brainstorm: Variable costs and fixed costs - FCs: capital expenditures, employee salaries and benefits, building maintenance, and utilities
- VCs: health care worker supplies, patient care supplies, diagnostic and therapeutic supplies, and medications
- Overhead: legal, IT, HR, and finance departments
- SK saw a total of 150,000 patients last year, RI saw of 200,000 patients
- Avg. revenue/patient – SK=$150 and RI = $100
- Total Revenue (SK) = 150,000 x $150 = $22.5M
- Total Revenue (RI) = 200,000 x $100 = $20M
- VC: Scorekeepers and Ricks is both X% of average revenue per patient
- SK = 150,000 x ($150 x 20%) = $4.5M
- RI = 200,000 x ($100 x 15%) = $3M
- FC: Scorekeepers and Ricks is both X% of average revenue per patient
- SK = 150,000 x ($150 x 40%) = $9M
- RI = 200,000 x ($100 x 30%) = $6M
- Overhead: SK = $4.5M and Ricks = $9.25M