Hospital M&A hits new high in 2017 at $63B
- Hospital and health system M&A occurred at a dizzying pace in 2017, with 115 transactions totaling $63.2 billion — up from 102 and $31.3 billion the prior year and three more than the previous high of 112 in 2015, a new Kaufman Hall report shows.
- Of those, 11 involved sellers with net revenues of $1 billion or more, the most megadeals ever.
- M&A shows no signs of abating in 2018. Kaufman Hall predicts more megadeals, alignment of nontraditional players with targeted segments, collaboration on nonprofit and for-profit providers and transactions along the continuum of care, among important trends to watch.
Strategic rather than financial aims are driving most deals. “Intellectual capital, brand and presence, network infrastructure, risk-bearing capabilities, care continuum, clinical and business intelligence, consumerism, capital resources, and diversified operations represent the most frequently cited benefits of these transformative partnerships,” the report says.
The biggest regional health system transaction was the Advocate Health Care and Aurora Health Care merger. If completed, the combined company will be the 10th largest nonprofit health system in the U.S. with 27 hospitals and nearly 3 million patients a year. Their combined annual revenue would be about $11 billion.
Of the 115 deals last year, 37 involved for-profit divestitures. Community Health Systems led the pack with 10 transactions involving 23 hospitals. Next was Quorum with six transactions covering eight hospitals, followed by Tenet with three deals and seven hospitals.
Pennsylvania, Georgia and Texas had the most M&A activity, with 14, nine and eight deals, respectively. All three states have experienced serious consolidation in their healthcare markets, with 26, 23 and 29 transactions over the past three years, the report notes. Among the Pennsylvania deals were purchases of for-profit CHS hospitals by nonprofits UPMC Pinnacle and Reading Health System.
The whirlwind of activity comes as hospitals see reimbursement cuts, lower patient volumes and pressure to provide more care in outpatient settings. New reimbursement models such as bundled payments and value-based payment are forcing organizations to rethink historical barriers and M&A prospects as they strive to compete in the healthcare space.
CVS Health’s $69 billion bid for Aetna is just one example of the kind of deal that can disrupt the industry. And early on Tuesday, Amazon, Berkshire Hathaway and J.P. Morgan announced a joint effort to take on rising healthcare costs, sending shares of healthcare companies down.
“If you don’t embrace these new ways to address competition and new business models, you risk falling behind where the industry is going,” Anu Singh, managing director at Kaufman Hall, told Healthcare Dive late last year.