- Hospitals in 2021 inked M&A deals aimed at stabilizing their pandemic-shaken core operations, according to a new analysis Monday from Kaufman Hall. It was a year marked by a significant drop in transactions across the sector overall, but a higher percentage of larger-sized deals.
- Just 49 health system mergers were announced in 2021, down from 79 in 2020 and the lowest number in a decade, according to the report. Yet the number of "mega mergers" in which the seller's annual revenue exceeds $1 billion almost doubled, reaching 16.3% in 2021, compared to 8.9% the year before. More than 12% of the smaller partners in those deals had a credit rating of A- or higher.
- Hospitals are also entering a new phase in healthcare dealmaking focused on partnerships that will look to tackle broader societal problems and address the needs of underserved populations, the industry consultants said.
Transactions involving groups of facilities in concentrated markets were one of 2021's most notable trends, the report found. Prominent examples included Tenet Healthcare's $1.1 billion sale of five hospitals and associated physician practices in south Florida to Steward Health Care and HCA's sale of four Georgia hospitals to Piedmont Healthcare for $950 million.
Steward doubled its Florida footprint through its deal with Tenet. HCA, meanwhile, said the hospitals it sold to Piedmont were not able to fully benefit from the chain's presence in their areas, Kaufman Hall said.
Pandemic disruptions and financial pressures have made non-core assets and markets less attractive to acquirers, the report said. Meanwhile, asset divestitures allow multi-regional systems to free up resources and re-balance portfolios focused elsewhere.
The consultants noted fewer independent, unaffiliated community hospitals seeking partnerships. In 2021's transactions, the average size of the smaller partner by annual revenue jumped to $619 million, from $388 million in 2020. Since 2011, average smaller partner size has increased at a compound annual growth rate of about 8%, they said.
The pandemic has drawn fresh attention to issues of health equity and underserved populations, and addressing those issues is becoming a stated goal of partnerships. In the Chicago area, for example, the merger of Edward-Elmhurst Health and NorthShore University HealthSystem includes creation of a community investment fund to which each partner will commit $100 million to support organizations working to advance health equity and local economic growth.
The report highlighted the efforts of several academic medical centers making a push to expand their intellectual capital resources in the past year. Among them, East Carolina University's Brody School of Medicine and Vidant Health joined forces to create ECU Health, with the goal of becoming a model for rural healthcare.
The University of Oklahoma College of Medicine Faculty Practice and OU Health said they would merge their hospitals and clinics into an integrated academic system, while King's Daughters Health System and University of Kentucky HealthCare announced a joint venture to expand services for residents of eastern Kentucky and southern Ohio.
Nonprofit health systems also stepped up their M&A activity in 2021, as both acquirers and sellers. Nonprofits were involved in 87% of announced deals, compared with 81% in 2020.