- Total revenue of hospital M&A so far this year dipped only slightly from last year despite the number of deals being nearly cut in half, according to a Wednesday report from Kaufman Hall.
- The average seller size of $659 million was well above year-to-date average going back to 2015, the earliest year featured in the report. This year's third quarter included the Intermountain Health merger with SCL Health to create an $11 billion system and HCA's buy of five Steward Health hospitals in Utah.
- Hospitals are increasing looking outside traditional care delivery methods to diversify business models by pursuing stakes in home health, virtual care and post-acute services. They are also identifying strategic partnership with payers, physicians groups and other adjacent sectors, Kaufman Hall said.
As the delta variant of the coronavirus walloped health systems in the third quarter, hospitals went after stabilizing deals — particularly those that don't rely on the payment models so disrupted by COVID-19.
"The vulnerabilities of volume-dependent fee-for-service payment models have been exposed, renewing interest in payer-provider partnerships for value-based payment structures," Kaufman Hall analysts wrote. "Healthcare inequities have also been brought to the fore, emphasizing the need for creativity and new partnerships to reach underserved populations."
The pandemic has strained hospitals in myriad ways. Nonemergency procedures have been postponed in some cases to make way for COVID-19 inpatients, while other patients defer regular preventive care. Meanwhile, staff dealing with intense burnout are leaving or cutting back hours, pushing hospitals to offer more generous salaries and benefit packages.
This led Kaufman Hall, backed by the American Hospital Association, to earlier conclude facilities will take a $54 billion hit to net income this year. Still, in the second quarter, for-profit operators performed above expectations and most posted a sizable profit.
This week's report showed that the third quarter included seven transaction involving 20 hospitals. Year to date there have been 34 announced transactions, down from 62 in 2020, 71 in 2019 and even more drastically declined from 85 in 2015.
Two of the Q3 deals were megamergers, in which the smaller partner has annual revenue over $1 billion. Kaufman Hall said it expects that trend to continue based on there being fewer independent hospitals and that systems are seeking out deals that open up new markets and services instead of just building on existing lines.
Hospital M&A deals are down, but not size
The Biden administration, however, is closely watching M&A in healthcare and other sectors. Mergers that stifle competition and keep prices artificially high will receive strict scrutiny from the Federal Trade Commission under a July executive order.
The hospital lobbies pushed back on the action, arguing M&A is already closely watched and that added measures would be excessive.
Meanwhile, FTC has warned reviews will be delayed because of large backlogs. That happened to Beaumont Health and Spectrum Health, which had expected their deal to close this fall.