- The first quarter of 2019 saw the lowest volume of hospital mergers and acquisitions in almost 10 years, with the fewest acute care hospital transaction announcements since the fourth quarter of 2009. According to a recent Ponder & Co. report, this past quarter was also the first since the third quarter of 2017 that include fewer than 20 announced transactions.
- The slowdown is due in part to the decelerated pace of for-profit divestitures following frenzied activity in 2017 and 2018, the financial advisory services company said. Those two years saw Community Health Systems announce 24 transactions alone, with LifePoint Health and Tenet Healthcare announcing the divestiture of another dozen facilities combined.
- Other factors include the grace period following M&A wherein health systems go through the processes of integration and organization and a lack of tempting acquisitions following a decade of frenetic merger activity.
Industry players are divided over how M&A trends have affected the healthcare system. Trade associations and provider lobbies tout the benefits of M&A, saying it gives health systems a stronger base to weather industry headwinds like flatlining inpatient admissions, expense inflation, shaky reimbursements and tighter margins without affecting care quality or access. But patient advocates and anti-consolidation groups decry the practice, citing studies finding the downsides of M&A may outweigh its potential positives.
Studies have shown rampant consolidation limits competition, leading to higher healthcare prices without leading to more coordinated, low-cost care for patients. Corporate savings rarely get passed along to the consumer, according to the left-leaning Center for American Progress, which called for increased scrutiny from antitrust regulators.
Though the feeding frenzy has slowed somewhat, Ponder & Co. expects for-profit M&A to continue as health systems reevaluate their portfolios, albeit at a more relaxed pace. The drivers for consolidation haven't changed, and many high-profile players across the industry are strategically turning to acquisitions and scale to stay afloat.
Both CHS and its 2016 spinoff of Quorum Health Corporation continue to double down on divestitures, with both companies announcing additional divestitures in the first quarter of this year. Ponder & Co also expects LifePoint's private-equity RCCH merger could result in the combined system shedding more facilities.
Though the pace of M&A is braking somewhat, the size of companies interested in consolidation has continued to grow. According to a January Kaufman Hall report, the average size in revenue of sellers in 2018 was $409 million — almost 14% higher than a decade ago — as M&A becomes less about opportunistic growth and more about strategy.