The healthcare industry is going through a period of transformation. Large healthcare organizations continue to grow in size and scale while smaller community hospitals struggle to find partners and ultimately close their doors. As a result, healthcare M&A activity will continue to be strong in 2022 as the mega-mergers continue.
Decline in mergers
In 2021, the number of collaboration, merger, and acquisition transactions between hospitals and health systems was down overall, but they were larger in size. However, experts believe that this pattern will reverse in 2022. In fact, as healthcare organizations become pickier about finding a partner, mergers and acquisitions are anticipated to rise.
The pandemic played a substantial role in declining the number of mergers. Organizations have become more selective about which market they are entering and FTC guidelines on approving the transactions have become stricter. According to the FTC, healthcare transactions can result in significant competitive effects where healthcare systems or hospitals are dominant in an area, and therefore, can increase prices for services.
To better enable competition among healthcare systems, FTC guidance requires organizations to demonstrate that their merger will not substantially lessen competition. Even if healthcare organizations can meet the FTC’s standard, mergers and acquisitions may also raise antitrust concerns in other countries.
Territorial consolidation
As healthcare spaces have become more crowded and competitive, large systems have turned to mergers to consolidate power — and price. The mega-merger trend will continue, especially with partnerships across state lines.
In Q4 2021, HCA Healthcare agreed to buy Steward Health Care’s five hospitals in Utah, citing the opportunity to expand in a state with a rising population. Earlier in the year, HCA sold four hospitals in Georgia to Piedmont Healthcare.
Steward has also made some moves, purchasing five Florida hospitals and physician practices from Tenet Healthcare. With the move, Steward now operates 10 hospitals in the state. These health systems are expanding their footprint in the targeted geographical area that can be financially optimal.
What’s next?
One interesting pattern that emerged during 2021: the number of transactions decreased, and yet the value of transactions increased. The impact of transaction activity on the industry continues to develop. Unaffiliated and independent health care facilities are uncommon, and organizations have gotten more discerning about potential partners as a result of their focus on business reasons.
This piece was written by David Chou, who serves as CIO for an academic health system. Previously, he has held roles with the Cleveland Clinic, Children’s Mercy Hospital, and University of Mississippi Medical Center, among others. To view his blog, click here.
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