There has been an increase in hospital consolidation in recent years, and that trend is expected to continue into 2017.
Many healthcare organizations are pursuing mergers, acquisitions and other types of partnerships with a focus on providing coordinated, cost-effective care. There were 112 hospital transactions announced in 2015, an increase over the 95 deals that were announced in 2014, according to an analysis by Kaufman, Hall & Associates released in January. As of the third quarter, 2016 was keeping pace with 2015 transaction activity. Kaufman Hall identified 77 hospital and health system transactions in the first three quarters of this year, just shy of the 78 deals announced in the same period of 2015.
What does the pace of healthcare merger and acquisition activity look like for 2017? Here, Mark Claster, a partner at New York City-based investment banking firm Carl Marks Advisors, shares the key healthcare M&A trends he witnessed this year and what he expects for the year ahead.
1. Hospital consolidation will continue in 2017. "Hospital consolidation won't stop [in 2017]," Mr. Claster says. He says a number of factors, such as the increased focus on population health, disputes between payers and providers and lower reimbursement, will cause hospital consolidation to continue next year. However, Mr. Claster says the idea of merging to fulfill the "bigger is better" notion is no longer the norm. If hospitals consider integration, they will approach the situation in terms of how much more leverage a merger would provide in dealing with outside forces beyond the hospital or health system's control, Mr. Claster says.
Mr. Claster also notes the important role private equity funds play in the healthcare services sector. "Private equity investments [into the healthcare industry] will continue as long as the economy doesn't falter," he says, keeping the number of transactions on par with those that occurred in 2015.
2. How fiercely the federal government pursues antitrust cases may change. Mr. Claster says had Democratic nominee Hillary Clinton won the election, the federal government would likely have continued to oppose proposed healthcare deals for potential antitrust violations. However, with President-elect Donald Trump at the helm, it remains to be seen how closely the federal government will fight potential violations. The Federal Trade Commission took action against several proposed hospital mergers in 2016. There are a number of major cases the courts have yet to make a decision on, including the proposed merger between Downers Grove, Ill.-based Advocate Health Care and Evanston, Ill.-based NorthShore University HealthSystem. In the insurance market, the courts have yet to issue a decision on the Anthem-Cigna and Aetna-Humana merger deals, though officials expect the courts to issue decisions before the end of the year.
3. Other industry giants will continue to invest in healthcare initiatives. "Nontraditional players in the industry are on the rise," says Mr. Claster. He says the number of industry outsiders investing in healthcare-related pursuits will continue to increase as businesses outside of the sector recognize the potential growth opportunities healthcare-related endeavors can provide. Mr. Claster cited Mattel's decision to develop health devices for babies and children as an example of a non-healthcare-related business entering the healthcare space.
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