Two stakeholders share their thoughts on merger and acquisition trends in healthcare to watch out for this year.
According to a recent Kaufman Hall report, there were fewer hospital m&a in 2021, but those transactions involved bigger health systems generating almost twice as much revenue compared to m&a activity in 2020.
The consensus is that this trend will continue this year, especially among health services organizations.
HealthLeaders recently spoke with two stakeholders who shared their thoughts on what m&a activity we can expect to see this year, and who shared best practices for organizations to benefit from m&a activity.
2022 m&a analysis
"I would say that merger activity—call it merger mania if you want to— has kind of run its course [on the healthcare delivery side]," Michael Abrams, MA, managing partner at Numerof & Associates, told HealthLeaders. "[Last year] we saw fewer but larger deals, and we may see more of these in '22."
Where there will be more intense m&a activity, Abrams said, is in health services, particularly physician practices and networks.
"We're also expecting a continuation of m&a in other health services, like long term care, skilled nursing, assisted living, home care, behavioral health, and long-term care hospitals," he added. "That activity is going to be driven by the fact that there's plenty of private equity and corporate capital out there looking for assets to buy across all these sub sectors. In '22, we expect to see continued interest by payers and private equity in all of these sub sectors of healthcare delivery."
He also said that some of the nation's largest insurers have been happy to buy up providers and to move into the care delivery system. "We can expect more of that," Abrams said.
"I don't see a slowdown [in m&a this year] because the same reasons to be acquired or merging haven't changed in the healthcare system," John Washlick, shareholder at Buchanan Ingersoll & Rooney PC, told HealthLeaders.
He also believes that m&a deals this year will be a continuation of what happened in 2020 and 2021.
"Last year the deals were smaller, but they were much bigger. There was a flurry of activities during the year, particularly with physician practices, [because] they were worried that the Biden Administration was going to try to have their capital gains tax eliminated," he said. "I think when they realized that that wasn't going to happen, they slowed down a little bit, but only to be pushed off into 2022. And January has been very busy."
Washlick said that he anticipates clinical affiliations and joint ventures to continue to happen as a stepping stone that could lead to a merger or acquisition.
"Clinical affiliations and joint ventures, which are single profitable and income-producing to both parties, are on the rise, and often, they will lead to a potential outright merger or acquisition," he said.
Best practices to benefit from m&a activity
When it comes to best practices, Abrams said that there is a lot of work to be done among newly consolidated healthcare delivery organizations to capture the economies of scale.
"Most healthcare delivery organizations know how to consolidate their purchases and use their newly increased volume to extract lower pricing from their vendors. But when it comes to capturing the economies of scale at a process level that's relatively rarely done," he said.
His advice is to standardize processes across the organization, and this can include HR processes, dealing with payers, and ironing out issues concerning reimbursement, as well as clinical processes.
"There's enormous potential for healthcare systems to standardize processes, particularly those processes that are clinical, where there is research to support certain diagnostic protocols, as an example, that needs to be spread and needs to be replicated across the institution. There needs to be a process itself for ensuring that best practices in the clinical realm are replicated across the organization," he said. He also added that " processes that enhance the patient experience should be prioritized and replicated across the organization."
Washlick added that organizations should look internally to ensure that they can sustain what they're doing, as well as look at its core business, and how its services are helping the community.
"It's a matter of looking at your core business, and all these ancillary businesses that have developed over the years, to see if they're profitable," he said.
Organizations should also ask themselves how they can better provide for their communities.
"Are there different services that the community is in need of that they can provide? If they can't provide it, can they provide it through a grass roots matter and go out and build it? And if they can't do it themselves, is there a strategic partner out there another hospital or health system that can assist," he said.
Melanie Blackman is a contributing editor for strategy, marketing, and human resources at HealthLeaders, an HCPro brand.