Hospital transaction activity is expected to continue at a high rate in 2014, spurred by various market and regulatory trends, according to a report from global consulting firm PwC.
Hospital deal volume has been steadily rising since 2009, although it dipped by 5 percent in 2013, according to the report. There were 89 mergers and acquisitions announced in the sector last year, down from 94 in 2012. However, total hospital transaction value rose from $1.9 billion in 2012 to $18.6 billion in 2013 because of several multibillion-dollar deals. These deals included, among others, Franklin, Tenn.-based Community Health Systems' $7.6 billion acquisition of Naples, Fla.-based Health Management Associates and Dallas-based Tenet Healthcare Corp.'s purchase of Nashville, Tenn.-based Vanguard Health Systems — a deal valued at $4.3 billion.
PwC expects factors such as uncertainty surrounding healthcare reform, convergence within the payer and provider arenas and expanding physician alignment will continue to drive high levels of hospital deal activity in 2014, according to the report.
"Health systems really need to rethink how and where they deliver care and how to best manage the patient populations," says Steven Elek III, partner and global healthcare deals leader at PwC. "That's impacting how they think about their missions. So I would expect to continue to see a heightened level of hospital deal activity."
He says some notable trends prompting hospitals and health systems to consolidate are downward pressure on revenues driving the need for scale, health systems assessing new geographies and patient populations as well as competencies and the pursuit of greater negotiating leverage with non-government payers. He says other key drivers of consolidation include capital access challenges for financially stressed organizations, capacity management and providers looking to achieve cost synergies through the consolidation of administrative services, leveraging the supply chain and rationalizing capital projects.
Based on what PwC has observed among its clients, Mr. Elek says it's quite likely deal volumes will rise again this year, and larger health systems will also continue to develop and acquire health plans.
The report says hospital and health system consolidation plays into efforts to revamp care delivery and reduce spending. "Building the end-to-end continuum of care is a pathway to assist in controlling costs and improving the patient experience," the report states. "Many deals in the hospital, healthcare system and physician medical group sectors attempt to address these issues."
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