Steever says the passage of the Patient Protection and Affordable Care Act continues to play a big role in accelerating hospital M&As. "Before the Affordable Care Act was passed, the rate of hospital deals was very low because people didn't know what the outcome was going to be and they didn't know what the reimbursement protocol was going to be," he says. "Because of that they couldn't accurately calculate revenue and cash flow, and that made it hard to place valuations on businesses they wanted to buy."
"Once ACA passed activity took off, although a lot of it is vertical. You have hospitals buying physician groups and IT businesses to put together the elements of an affordable care organization," he says.
Steever says he expects that hospital M&As will continue at a healthy clip in 2012. "The only thing that could slow it down is dithering over the election and the direction that healthcare might take depending upon who wins the White House," he says.
"If healthcare becomes a big issue in the campaign, it will slow down the deal-making," he says. "The partners will take longer in their due diligence because they will want try to accurately value the deal, so they will have to compare a scenario where the Affordable Care Act continues to kick in versus one where it gets stripped out. They will have to produce valuations that take both scenarios into account. That just slows down deal-making but it is not going to stop it, because the underlying structural reasons exist regardless of what happens with the government."
Steever does not believe that access to capital will be a problem for the larger, stronger providers that are in a position to gobble up smaller competitors. "The capital is there and it is going to be there for those hospitals because they are fairly large. The smaller entities are still going to experience difficulty accessing capital," he says.
"Private companies are sitting on a huge wad of cash. There are some publicly traded companies have great cash flow, and some of the Catholic not-for-profits have great bond ratings and great tradition of fiscal responsibility and uncanny management," he says. "Access to capital is not a brake on this activity."