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Billion-Dollar Deals Lead First-Quarter Healthcare M&A

Analysis  |  By Gregory A. Freeman  
   August 13, 2018

Mergers and acquisitions by hospitals and health systems are up from the same time in 2017.

Mergers and acquisitions are up in 2018 over the same period in 2017, with three deals involving systems that have more than $1 billion in revenue, according to an analysis by Kaufman Hall, a healthcare consulting and software provider.

There were 30 partnership transactions in the first quarter of 2018, which is an 11% increase over 2017's first quarter.

In addition to the three $1 billion-plus deals, there were four that included systems with revenue bases of $500 million to $1 billion partnering with even bigger organizations.

These are other key findings from the report:

  • The trend for mega-deals continue. In 2017 there were 10 involving sellers with net revenues of $1 billion or greater.
  • The largest deal in the first quarter of 2018 was the merger of Bon Secours Health System and Mercy Health, which will create a 43-hospital system serving seven states. The newly formed system will have $8 billion in net operating revenue.
  • Another notable partnership involves Einstein Healthcare Network, the largest independent academic medical center in the Philadelphia region, and Jefferson Health, a 14-hospital system with about $5 billion in annual revenue.
  • HCA Healthcare is acquiring Mission Health, a seven-hospital system based in Asheville, N.C. The report notes that HCA's deal with not-for-profit Mission Health advances the for-profit corporation's acquisition strategy at a time when other for-profit healthcare organizations have been trimming their portfolios. Community Health Systems announced divestiture of six hospitals in the first quarter of 2018.
  • In 2017, 32% of sale transactions involved for-profit divestitures. In the first quarter of 2018, slightly over one-third (11) of the transactions included for-profit targets.

"Sizable organizations are continuing to pursue even larger partners in 2018, as providers look to establish a broader base of services and operations, in part, to compete against non-traditional market entrants that are bringing consumer focus and lower costs to the industry," said Anu Singh, managing director at Kaufman Hall. "Greater scale enables health systems to build the tangible and intellectual capital required to secure the resources they need to transform traditional business models from an economic and service standpoint. Without such scale, legacy hospitals and health systems are going to find it difficult, if not impossible, to stay competitive in markets with these new entrants and emerging mega-systems."

Singh notes that large for-profit and not-for-profit health systems continue to reposition their operations to increase market access in regions of strategic interest, while rationalizing, downsizing, and even exiting markets where there is not a path to relevance over the long term.

"These moves reinforce the shift from the financial to the strategic rationale of most partnership activity. At least in this dimension, the distinction between for-profit and not-for-profit is dwindling," he says.

Gregory A. Freeman is a contributing writer for HealthLeaders.

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