Some of the largest healthcare merger and acquisition deals in 2022 involved cross-market transactions, and this trend is expected to continue in 2023, a report from Kaufman Hall said.
Examples of such transactions include the Advocate Aurora and Atrium Health deal and the proposed Sanford Health and Fairview Health combination. Such transactions connect health systems in different geographies with little to no overlap in their respective markets, the report said.
"As we have continued to report, the movement to capability-based scale is much more prominent than adjacent market-based scale," Kaufman Hall said.
While such cross-market deals have an obvious advantage of spreading the combined organizations' operating risks across multiple markets, there are other advantages that can come into play, such as expanding access to an academic medical center or widening the opportunity to experiment with innovative approaches because of more diverse markets resulting.
With regulators increasingly clamping down on proposed transactions in similar geographic regions, cross-market transactions are likely to be at the helm of future healthcare M&A, the report suggested.
"A benefit of cross-market mergers is that they do not actually change the competitive structure of the markets involved in the merger — there is no increase in the concentration of local hospitals or health systems, an increasingly important feature considering the current regulatory landscape," the report said.