2018 M&A market brought out new competitors, strategies

In 2018, the hot M&A market showed no signs of slowing down, with 90 deals announced during the year, according to a recent report from Kaufman Hall.

The healthcare industry’s new market is still shaping up as transactions over the last several years have reshaped the landscape, but several trends have emerged.

Mega-mergers

Previous trends of consolidation across health systems and hospitals continued from 2017 into 2018, according to the report, as mega-mergers became more commonplace across the healthcare industry.

“The trend toward mega mergers has been paralleled by and has influenced the steady growth in the size of M&A transactions overall,” the report stated.

In addition to bigger deals, buyers were looking to expand into new markets. The expansion of regional health systems was driven by a desire to enter a new geographic market or improve a home market, but also to create greater synergies in operational efficiencies, according to the report. Larger scale operations was also a defensive move against new healthcare competitors.

During the year, buyers in the space were large conglomerates already, meaning the big were “getting bigger,” the report reads. In 2018, seven transactions involved sellers with net revenue of $1 billion or more.

However, M&A activity varied between states, suggesting growth was not universal across markets. Regional health systems are still expected to continue growing their operations in 2019 by deepening ties in their home markets and expanding into new ones.

New competitors

Healthcare’s growing presence in the economy and high cost to employers has made it a hot sector for outsiders. Amazon and Apple have both gotten into the healthcare space over the last few years, influencing other mergers. CVS Health, for one, acquired health insurance provider Aetna for $69 billion. Together, the two companies have annual revenue of $246 billion.

According to Kaufman Hall, new entrants in the space are targeting patients at the “front door” of healthcare, or those that demand higher-acuity inpatient services at health systems.

“If these new market entrants can gain control of healthcare’s front door, without the expense and burden of hospital facilities and inpatient care, they will also be able to influence patient referral patterns, and hospitals will increasingly assume the role of cost centers,” the report states.

Health systems are increasingly looking to be partners with new entrants to boost their relevance with consumers, though some have partnered up to enter the pharmaceutical space, as well as investing in startups themselves. Others are adding innovative services, such as virtual care, to improve their own offerings.

As health systems look for ways to grow, not-for-profits and for-profits are overlapping more often. HCA’s bid to acquire Mission Health in 2018 is one example of a new blurred line between the for-profit and not-for-profits worlds.