Despite continued and sometimes unsettling M&A activity in the industry, the fundamental mission of healthcare has not changed.
Merger, acquisition, and partnership (M&A) activity within the healthcare industry shows no sign of diminishing, with nearly all indicators pointing to continued consolidation, according to a 2019 HealthLeaders Mergers, Acquisitions, and Partnerships Survey. The fundamental need for greater scale, geographic coverage, and increased integration remains unchanged for providers, and this will sustain M&A activity for years to come.
Evidence of the M&A trend's resiliency is found throughout the HealthLeaders survey. For example, 91% of respondents expect their organizations' M&A activity to increase (68%) or remain the same (23%) within the next three years, an indication of the trend's depth. Note that only 1% of respondents expect this activity to decrease.
Likewise, 38% of respondents say that their organization's M&A plans for the next 12–18 months consist of exploring potential deals, up six percentage points over last year's survey, and another 35% say that their M&A plans consist of both exploring potential deals and completing deals underway. This means that nearly three-quarters (73%) of respondents will be exploring potential deals during this period.
Megamergers and industry impact
While steady healthcare industry M&A activity has been with us for some time, a series of new and rumored megamergers and partnerships is capturing the headlines these days. This recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation, one that will likely alter the landscape in unanticipated ways.
The majority of respondents in our survey say that they expect significant industry impact from these megamergers, led by CVS Health's merger with Aetna (68%), Walmart's potential deal with Humana (57%), and Amazon's partnership with JPMorgan Chase and Berkshire Hathaway (49%). While information regarding the latter two developments is still in short supply, respondents see the potential for large-scale impact.
Faced with such far-reaching and transformative new relationships, what are healthcare providers to do? As things currently stand, even the largest health systems lack the scale to negotiate on equal footing with most insurers, and these new hybrid organizations combine scale, technology, and innovative structures.
However, there is no need for providers to panic—these megamergers are still in the early stages of implementation, and the fundamental mission of healthcare has not changed.
"I don't think people fully understand the real business purpose of this type of activity yet, or what these organizations are trying to get out of their connections," says Kevin Brown, president and CEO of Piedmont Healthcare, a Georgia-based nonprofit health system with 11 hospitals and nearly 600 locations. "Time will tell regarding the impact they will have on the industry landscape and its different segments."
"I haven't spent a lot of time thinking or worrying about these new developments. Generally, I spend my time thinking about what we are doing on a day-to-day basis as an organization to fulfill our mission and take care of the communities we serve. I'm certainly aware of these developments, but it's important not to get distracted from our core purpose," Brown says.
Jonathan Bees is a research analyst for HealthLeaders.
73% of healthcare executive respondents will be exploring potential M&A deals during the next 12–18 months, according to a new HealthLeaders survey.
The recent M&A movement toward vertical integration involving nontraditional partners suggests that the healthcare industry is undergoing a major transformation.