HCA has purchased MD Now Urgent Care, Florida’s largest urgent care chain, adding 59 urgent care centers to its existing 170. Meanwhile Tenet’s $1.1B deal to buy SurgCenter Development cements its position as the nation’s largest ambulatory surgery center (ASC) operator, eclipsing Envision-owned AMSURG and Optum-owned Surgical Care Affiliates.
The Gist: Healthcare services are increasingly moving outpatient and even virtual—a trend only accelerated by the pandemic. With this latest acquisition, Tenet will now own or operate nearly seven times as many ASCs as hospitals. Such national, for-profit systems are looking to add more non-acute assets to their portfolios, to capitalize on a shift fueled by both consumer preference for greater convenience, and purchaser pressure to reduce care costs.
The boom in global mergers and acquisitions in 2021 will surge into 2022, fueled by abundant investment capital, historically low interest rates and a rebound in global economic growth, according to a survey of 345 corporate dealmakers in the U.S. by KPMG.
“Based on the volume of new pitches in November and December — transactions that would come to market in Q1 and Q2 of 2022 — there are no signs of a slowing deal market,” according to Philip Isom, global head of M&A at KPMG. While facing high valuations, “most investors have limited time horizons to invest in, so they may be willing to reach further on price than they have historically.”
More than 80% of the survey respondents across several industries expect total M&A valuations to rise further next year, with about one out of every three predicting at least a 10% increase, KPMG said. Dealmakers said transaction levels will remain robust because companies “need to remain on the offense with the competition” and “feel pressure from investors to raise their own valuations.”
Worldwide deal value from January until mid-November this year hit $5.1 trillion, the highest level since 2015 and a 34% gain compared with all of 2020, KPMG said. U.S. transactions rose to $2.9 trillion, or 55% more than during all of last year.
M&A has soared in 2021 as the economy recovered from a pandemic shock, record monetary and fiscal stimulus pumped up liquidity and many companies sought through acquisitions to regain their footing after months of lockdowns and persistent supply chain disruptions.
A widespread labor shortage will probably push up dealmaking next year. One-third of survey respondents said they want to use M&A to acquire talent, KPMG said.
Also, companies increasingly use acquisitions to change their business or operating models, KPMG said, noting that industrial and financial services companies buy companies that help speed their digital transformation.
“The aim is to increase efficiencies and contribute to having more agile workforces,” according to Carole Streicher, KPMG’s deal advisory and strategy service group leader in the U.S.
Private equity firms will continue to push up the volume and value of M&A next year, after increasing their involvement in transaction value by more than 55% so far in 2021, KPMG said. PE firms have pursued deals this year in part because of the prospect of an increase in corporate capital gains taxes.
Growing support for sustainability among investors, regulators and other stakeholders may prompt M&A, “as businesses look at their ecological footprint and consider purchasing, rationalizing or divesting assets,” KPMG said. Investors are likely to consider sustainable businesses more adaptable to market shifts.
Finally, concerns about the potential for rising borrowing costs may prompt dealmakers who rely on debt financing to speed up acquisition plans. Federal Reserve Chair Jerome Powell late last month said policymakers at their two-day meeting beginning Tuesday will likely consider speeding up the withdrawal of accommodation.
Dealmakers face some headwinds. Democrats in the Senate have yet to muster enough support for a roughly $2 trillion social policy bill that would help sustain economic growth. Meanwhile, the outbreak of the omicron variant of COVID-19 has highlighted the fragility of financial markets and the economy to any setbacks in curbing the pandemic.
Survey respondents identified several factors that will influence dealmaking next year, with 61% underscoring high valuations, 56% pointing to liquidity and other economic considerations, and 55% noting intense competition for a limited number of highly valued acquisition targets, KPMG said.
Still, only 7% of the survey respondents said they expect deal volumes to decline in their industries next year.
Survey respondents work at companies in industries ranging from media and financial services to energy and technology, with 194 of them CFOs, CEOs or other C-suite executives.
In 2020, a record-breaking 19 rural hospitals closed their doors due to a combination of worsening economic conditions, changing payer mix, and declining patient volumes. But many more are looking to affiliate with larger health systems to remain open and maintain access to care in their communities. The graphic above illustrates how rural hospital affiliations (including acquisitions and other contractual partnerships) have increased over time, and the resulting effects of partnerships.
Affiliation rose nearly 20 percent from 2007 to 2016; today nearly half of rural hospitals are affiliated with a larger health system.
Economic stability is a primary benefit: the average rural hospital becomes profitable post-affiliation, boosting its operating margin roughly three percent in five years. But despite improved margins, many affiliated rural hospitals cut some services, often low-volume obstetrics programs, in the years following affiliation.
Overall, the relationship likely improves quality: a recent JAMA study found that rural hospital mergers are linked to better patient mortality outcomes for certain conditions, like acute myocardial infarction. Still, the ongoing tide of rural hospital closures is concerning, leaving many rural consumers without adequate access to care. Late last month, the Department of Health and Human Services announced it would distribute another $7.5B in American Rescue Plan Act funds to rural providers.
While this cash infusion may forestall some closures, longer-term economic pressures, combined with changing consumer demands, will likely push a growing number of rural hospitals to seek closer ties with larger health systems.
Under the new deal announced Monday, Tenet will acquire SCD’s ownership interests in 92 ambulatory surgery centers and other support services in 21 states.
In addition to the acquisition, USPI and SCD plan to enter into a five-year partnership and development agreement in which SCD will help facilitate “continuity and support for SCD’s facilities and physician partners.” USPI will also have exclusivity on developing new projects with SCD during the five-year agreement.
Despite being a legacy hospital operator, Tenet’s outpatient surgery business is key to its long-term strategy.
After the latest deal closes, USPI will operate 440 surgery centers in 35 states, Tenet said Tuesday. The acquisition will boost USPI’s footprint in existing markets, such as Florida where it already operates 47 centers and will gain an additional 15. USPI will also enter new markets, such as Michigan, with a sizable footprint at the outset, executives said Tuesday.
The deal includes 65 mature centers and 27 that have opened in the past year or will soon open and start performing their first cases. Tenet may also spend an additional $250 million to acquire equity interests from physician owners.
Tenet leaders touted SCD’s service line mix, pointing out that a significant portion of the cases performed by these centers are for musculoskeletal care, which includes total joint and spine procedures.
The deal is expected to generate $175 million in EBITDA during the first year, executives said.
SVB Leerink analysts characterized the deal as savvy and said it will reshape the company’s earnings towards a “faster growing, higher margin, and improved capital return profile.”
Heading into 2021, Tenet had expected a greater share of its earnings power to come from its outpatient surgery business. This deal accelerates that aim over the long-term.
In 2014, Tenet’s ambulatory surgery business accounted for just 5% of the company’s overall earnings. Prior to this latest deal, Tenet expected the unit to account for 42% of its overall earnings in 2021.
This latest announcement follows Tenet’s deal in October with Compass Surgical Partners to acquire its ownership and management interests in nine ambulatory surgery centers located in Florida, North Carolina and Texas for an undisclosed sum.
Dallas-based Tenet Healthcare and one of its subsidiaries have entered into a definitive agreement to acquire Towson, Md.-based SurgCenter Development.
Under the agreement, Tenet and its subsidiary United Surgical Partners International will acquire ownership interests in 92 ambulatory surgery centers and related ambulatory support services for approximately $1.2 billion. Of the 92 ASCs, 16 of them are under development and have not yet opened.
Under the deal, expected to close in the fourth quarter of this year, SurgCenter and USPI will also enter into an agreement to develop at least 50 centers over a five-year period.
“We are extremely pleased to announce this transformative transaction and partnership, which builds upon USPI’s position as a premier growth partner and SCD’s track record of developing high-quality centers with leading physicians,” Saum Sutaria, MD, CEO of Tenet Healthcare, said in a Nov. 8 news release. “By welcoming these centers into our company, USPI will maintain its reach as the largest ambulatory platform for musculoskeletal services, a high-growth service line.”
Tenet said it expects the deal to generate strong financial returns.
Health insurers licensed by the Blue Cross Blue Shield Association face steep financial penalties from that organization if they merge with a competitor that doesn’t sell BCBS insurance, Axios’ Bob Herman writes.
Why it matters: Blue Cross Blue Shield is one of the most recognizable health insurance names in the country, and the powerful association behind that brand wants to keep its dominance in local markets.
Case in point: Triple-S Management, a BCBS affiliate in Puerto Rico, sold itself in August to the parent company of the Florida Blues for $900 million.
If Triple-S sold itself to a non-BCBS company, therefore terminating its license with the BCBSA, Triple-S would have faced a $96 million surcharge, according to merger documents filed by Triple-S.
The $96 million charge, based on a fee of $98.33 per member, was called a “re-establishment fee.”
What they’re saying: “The license agreements between the Blue Cross Blue Shield Association and its licensees include various financial and other provisions that apply to terminations, mergers and sales of licensees,” BCBSA said in a statement.
“BCBSA is unable to confirm the financial implications of any other transactions that Triple-S may have considered in deciding to enter into this transaction.”
The Federal Trade Commission announced Oct. 25 it is restoring its practice of requiring companies that previously pursued an anticompetitive merger to get prior approval for future transactions.
Six things to know:
1. The FTC will now require companies to get prior approval from the agency for any transaction “affecting each relevant market for which a violation was alleged” for at least 10 years.
2. The FTC said in some situations it may seek prior approval provisions that cover broader geographic markets beyond just the relevant markets affected by the merger. The agency will consider several factors to make the determination, including the level of market concentration, the degree to which the transaction increases concentration and evidence of anticompetitive market dynamics.
3. The FTC is less likely to pursue a prior approval provision against merging companies that abandon their transaction, the commission said.
4. The FTC is reinstating the prior approval practice after the commission voted in July to repeal a 1995 policy statement that prevented the agency from imposing these merger restrictions.
5. The agency said it has already implemented the policy by imposing strict limits on future acquisitions by Denver-based DaVita after the company’s acquisition of University of Utah Health’s dialysis clinics.
6. “The FTC should not have to waste valuable time and resources investigating clearly anticompetitive deals that should have died in the boardroom,” Holly Vedova, director of the agency’s bureau of competition, said in a news release. “Restoring the long-standing prior approval policy forces acquisitive firms to think twice before going on a buying binge because the FTC can simply say no.”
3. North Carolina system severs ties with Atrium, joins UNC Health Carolinas HealthCare System Blue Ridge, a two-campus system in Morganton, N.C., cut ties with Atrium Health and partnered with UNC Health. Carolinas HealthCare System Blue Ridge and UNC Health finalized their management services agreement Oct. 1. Under the partnership, Blue Ridge will be renamed UNC Health Blue Ridge.
6. LifePoint, Prisma Health call off hospital sale A deal to sell the three hospitals in South Carolina fell through. Brentwood, Tenn.-based LifePoint inked a deal to sell the three hospitals and an ER to Greenville, S.C.-based Prisma Health, but the parties canceled the deal April 9. The health systems said significant delays and challenges with the Federal Trade Commission “made it prohibitive to move forward.” Medical University of South Carolina in Charleston later purchased the three hospitals.
7. Sentara, Cone Health nix merger Norfolk, Va.-based Sentara Healthcare and Greensboro, N.C.-based Cone Health have abandoned plans to merge into an $11.5 billion system, the organizations said in a joint statement June 2.
More than three years after signing a letter of intent to merge, Jefferson Health and Einstein Healthcare Network have finalized the deal.
The combination of the Philadelphia-based organizations brings together two academic medical centers and creates an integrated 18-hospital system with more than 50 outpatient and urgent care locations.
“The culmination of the multiyear process of bringing two great organizations with more than 300 combined years of service, clinical excellence and academic expertise is not just a merger,” said Stephen Klasko, MD, president of Thomas Jefferson University and CEO of Jefferson Health. “Einstein and the new Jefferson together represent an opportunity for the Philadelphia region to creatively construct a reimagining of healthcare, education, discovery, equity and innovation that will have national and international reverberations.”
The merger had previously faced antitrust scrutiny and delays from legal challenges. In particular, both the Federal Trade Commission and Pennsylvania’s attorney general sued the health systems in attempts to block the deal.
The FTC sued in February 2020, arguing that the combination of the two systems would reduce competition in both Philadelphia and Montgomery counties “to the detriment of patients.” An appellate court denied the FTC’s attempt to block the merger in December 2020, and the FTC officially dropped its challenge to the transaction in February 2021.
The Pennsylvania attorney general also dropped his opposition to the merger in January 2021 after the FTC lost its case.
Ken Levitan will continue serving as president and CEO of Einstein and add the role of executive vice president at Jefferson Health. In his new role, he will help guide the integration efforts.
About 73% of health insurance markets are highly concentrated, and in 46% of markets, one insurer had a share of 50% or more, a new report from the American Medical Association shows. The report comes a few months after President Joe Biden directed federal agencies to ramp up oversight of healthcare consolidation.
The majority of health insurance markets in the U.S. are highly concentrated, curbing competition, according to a report released by the American Medical Association.
For the report, researchers reviewed market share and market concentration data for the 50 states and District of Columbia, and each of the 384 metropolitan statistical areas in the country.
They found that 73% of the metropolitan statistical area-level payer markets were highly concentrated in 2020. In 91% of markets, at least one insurer had a market share of 30%, and in 46% of markets, one insurer had a share of 50% or more.
Further, the share of markets that are highly concentrated rose from 71% in 2014 to 73% last year. Of those markets that were not highly concentrated in 2014, 26% experienced an increase large enough to enter the category by 2020.
In terms of national-level market shares of the 10 largest U.S. health insurers, UnitedHealth Group comes out on top with the largest market share in both 2014 and 2020, reporting 16% and 15% market share, respectively. Anthem comes in second with shares of 13% in 2014 and 12% in 2020.
But the picture looks different when it comes to the market share of health insurers participating in the Affordable Care Act individual exchanges. In 2014, Anthem held the largest market share among the top 10 insurers on the exchanges, with a share of 14%. By 2020, Centene had taken the top spot, with a share of 18%, while Anthem had slipped to fifth place, with a share of just 4%.
Another key entrant into the top 10 list in 2020 was insurance technology company Oscar Health, with 3% of the market share in the exchanges at the national level.
“These [concentrated] markets are ripe for the exercise of health insurer market power, which harms consumers and providers of care,” the report authors wrote. “Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers involving health insurers.”
The payer industry hit back. In a statement provided to MedCity News, America’s Health Insurance Plans, a national payer association, said that Americans have many affordable choices for their coverage, pointing to the fact that CMS announced average premiums for Medicare Advantage plans will drop to $19 per month in 2022 from $21.22 this year.
“Health insurance providers are an advocate for Americans, fighting for lower prices and more choices for them,” said Kristine Grow, senior vice president of communications at America’s Health Insurance Plans, in an email. “We negotiate lower prices with doctors, hospitals and drug companies, and consumers benefit from lower premiums as a result.”
Further, the report does not mention the provider consolidation that also contributes to higher healthcare prices. Mergers and acquisitions among hospitals and health systems have continued steadily over the past decade, remaining relatively impervious to even the Covid-19 pandemic.
Scrutiny around consolidation in the healthcare industry may grow. In July, President Joe Biden issued an executive order urging federal agencies to review and revise their merger guidelines through the lens of preventing patient harm.
The Federal Trade Commission has already said that healthcare businesses will be one of its priority targets for antitrust enforcement actions.