The number of hospital mergers last year dipped about 22% in 2018 but grew in overall size as part of a broader trend toward megamergers, according to a new report.
In all, hospitals announced a total of 90 transactions in 2018, down from 115 in 2017, according to a report (PDF) from Kaufman Hall. The firm began monitoring hospital M&A in 2000. About 20% of the acquisition deals were considered distressed transactions.
The value of those deals is increasing, with the average size of a seller by revenue has grown at a CAGR of almost 14% per year since 2008 and reached a new high of $409 million in 2018.
“That so many of 2018’s mega-mergers involve the combination of systems from different—though often contiguous—geographies signals the desire of health system leaders to expand their organizations into new markets, or to bring in a partner from an outside market,” Kaufman Hall said in the report. “For health system leaders looking for an acquisition partner from outside of their organization’s home market, considerations may include the desire to improve operations within the home market, or a need for additional capital to better compete within the home market.”
Texas led the nation for M&A last year, clocking eight hospital deals with a total value of deals estimated to be about $6.8 billion. Most notably, the report points to Baylor, Scott & White’s planned merger with Memorial Hermann will bring together two Texas-based systems and combine Dallas/Fort Worth and central Texas markets with the Houston market.
Florida had seven announced deals worth about $3.6 billion, and Pennsylvania had six deals worth about $2.2 billion.
Kaufman Hall also cited the “slow but steady movement toward population health” as a factor in the desire to increase market presence and penetration.
“Effective risk management depends on a health system’s ability to improve cost efficiencies, care efficacy, and care management across the continuum, which may require both horizontal and vertical integration to achieve,” they said.
Kaufman Hall said as new combinations and competitors appear in the healthcare market, hospitals and health systems should double down on their consumer strategy and the fight to control healthcare’s “front door.”
They should also seek opportunities to deepen growth across the spectrum of healthcare services through combinations or partnerships with other healthcare organizations.