Hospital M&A activity rebounds in Q4

Hospital M&A activity rebounds in Q4


Hospital merger and acquisition activity rebounded in the fourth quarter, but annual deal volume still hit an 11-year low, according to a new report.

The COVID-19 pandemic caused many health systems to pause or abandon their merger and acquisition plans, resulting in only 79 announced deals in 2020, Ponder & Co. found. That was down 25% from the trailing 10-year average and the lowest annual tally since 2009.

But the 28 announced deals in the fourth quarter signaled that hospital executives are more comfortable with the virtual due diligence process and that finances have stabilized, said Eb LeMaster, managing director at the healthcare advisory firm.

“COVID at the end of day is a huge factor, but from a credit and balance sheet perspective many systems are at as good of a place as they were coming into the pandemic,” he said. “We’re back to the same pressures that were there pre-pandemic—the need to grow top-line revenue, outpatient expense inflation, the shift to value and transition to outpatient care.”

Several large not-for-profit transactions were called off last year. Advocate Aurora Health and Beaumont Health axed their plans to create a $17 billion system amid opposition from Beaumont doctors and other employees, as well as state and federal officials. Advocate Aurora’s plans to acquire Summa Health also fell through. Sanford Health and Intermountain Healthcare killed their transaction after Sanford’s CEO abruptly stepped down.

Meanwhile, state and federal regulatory scrutiny continues to ramp up as overseers try to prevent price increases and competitive imbalance.

Legal challenges could hamper Prisma Health’s plans to buy three hospitals from LifePoint Health. Methodist Le Bonheur and Tenet dropped their deal after the Federal Trade Commission challenged it; the commission also opposed Hackensack Meridian Health’s acquisition of Englewood Health. Federal regulators also sued to block Geisinger’s acquisition of Evangelical Community Hospital and Massachusetts General Hospital dropped its proposed acquisition of Exeter Hospital facing the New Hampshire attorney general’s opposition.

“It doesn’t feel like that will let up under the new administration,” LeMaster said. “There will continue to be a push-pull as hospitals try to be regionally relevant.”

While regulatory scrutiny of hospital transactions has increased over the past several months, the approach seems overly simplistic, said Anu Singh, Kaufman Hall managing director. Regulators typically frame these deals a means to gain leverage, he said, noting that health systems could come together to advance their IT platform or benefit from a system’s insurance arm, for instance.

“What the new administration may bring is new solutions or opportunities for hospitals, physician groups and health plans to work together in other ways,” Singh said, advocating for a more holistic regulatory review process.

The deals that did come to fruition late last year, as well as early this year, seemed to focus on portfolio rationalization stemming from mega-mergers in 2017 and 2018, LeMaster said.

CommonSpirit Health, for instance, signed a letter of intent to sell its North Dakota and Minnesota hospitals to Essentia Health; CommonSpirit also completed its acquisition of Virginia Mason. Ascension cut a similar deal with Aspirus Health involving seven of its Wisconsin hospitals.

“Those are examples of not-for-profit’s deep soul searching, evaluating which markets they can succeed in and which markets they need to explore other options,” LeMaster said. “We expect that to continue in 2021, with deal volume more similar to ’19 and ’20 than ’17 and ’18.”



Source link

About the Author

Marie Maynes
Marie Maynes is a Sports enthusiast and writes for the Sports section of ANH.