By Dana Jacoby
The number of healthcare M&A deals increased by over 50% between November 2020 and November 2021. Deloitte and other leading management consultants have predicted a busy period of further consolidation in the industry, partly brought about by the intensifying financial pressure faced by hospitals in the current economy.
However, there are several factors behind this frenzy of M&A activity, including corporations aiming for scale and growth as well as private equity firms and SPACs hoping to invest capital. Within the hospital sector, there were fewer consolidations but much bigger deals in 2021, and this is a trend that most analysts expect to continue.
The March to Digital
So what does all this activity mean for healthcare? For a start, the employer health benefits market and care navigation look set for a dramatic shakeup. We also expect to see more involvement from the likes of Amazon and Walmart as they start to act on their long-held ambitions in the healthcare space.
As the healthcare industry quickly shifts to digital, the health data environment is beginning to take on an entirely different look. Young, disruptive technology startups are hard at work building the ‘pipes’ that will enable healthcare interoperability. These emerging stars are already attracting significant investment.
This healthcare data interoperability market is expected to grow to $5.8 billion by 2028. That will certainly be helped along by the Trusted Exchange Framework and Common Agreement (TEFCA) framework, which goes live in 2022, with a slow but steady build-out of connectivity over the next 18 months.
Acquisition Targets and Implications
Today’s hospitals are squaring up to the more sophisticated demands of an aging population, large and permanent labor cost increases, and a tough recruitment landscape. That’s why life is becoming difficult for smaller, rural, and mid-sized hospitals, and why they are the most likely acquisition targets.
In states like Michigan, hospitals are operating close to capacity and their resources are stretched. They lack access to a deep pool of talent. After all, it can be difficult to entice experienced clinicians to a small-town practice. In the coming years, M&As may help struggling hospitals prevent bankruptcy, closure, or service reductions.
There is some concern that mergers tend to shutter or downsize money-losing service lines, such as EDs and maternity units, and disadvantage minority groups. Advisors to the Hospital Equity and Accountability Project have released a report to help researchers and policymakers direct the conversation around competition among SNFs and hospitals.
The good news is that we can expect increased scrutiny over M&A movements as the White House gets around to tackling health care costs. Early signs of this came last summer, with an executive order from the Biden administration obliging the Department of Justice and the Federal Trade Commission to reassess merger guidelines for hospitals.
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