Healthcare M&A trends post-pandemic

The healthcare industry has experienced unprecedented changes due to the COVID-19 pandemic. In this context, healthcare providers have had to reevaluate their strategies and operations, leading to an increase in mergers and acquisitions (M&A). According to the newest Kaufman Hall M&A Quarterly Activity Report, healthcare M&A activity has increased, bringing the number of deals back up to pre-pandemic levels. In this article, we'll take a closer look at the recent trends in healthcare M&A and what they mean for healthcare managers.

M&A Levels Return to Pre-Pandemic Levels

From April through the end of June 2023, there were 20 hospital and health system M&A transactions announced, making this the highest number of transactions announced since Q1 2020. The number of deals is "on par" with the 19 transactions announced in Q2 2019 and the 21 transactions announced in Q2 2018. It's also an increase from the 15 transactions announced during Q1, 2023.

Of the 20 announced transactions during the past quarter, the acquiring or larger party in the deals included:

• 8 nonprofit health systems
• 4 investor-owned health systems
• 2 religiously affiliated organizations
• 4 academic/university-affiliated organizations
• 1 governmental organization
• 1 academic organization partnering with multiple nonprofit organizations

The total transacted revenue is also in line with pre-pandemic activity levels. During Q2, the average size of the seller or smaller party, measured by annual revenues, was at $664 million. This is down from the record-breaking year-end average of $852 million in 2022.

Mega-Mergers

This data slightly dilutes the impact of three "mega mergers" that were announced during the quarter. These "mega mergers" include entities in which the seller or smaller party has an annual revenue of more than $1 billion.

Froedtert Health and ThedaCare

Milwaukee-based Froedtert Health and Neenah-based ThedaCare announced on April 11 that the systems signed a letter of intent to combine the systems. Following the merger, the 10-hospital Froedtert system in the southeast and the 8-hospital ThedaCare system in the northeast of the state plan to operate under their established brands and names.

Kaiser Foundation Hospitals and Geisinger Health

Megasystem Kaiser Permanente and Pennsylvania's Geisinger Health announced on April 26 plans to merge, with Geisinger to become the first hospital under KP's newly created but separate, value-based care affiliate, Risant Health. According to the deal, Geisinger will keep its name and mission and will continue to work with other health plans, employed physicians, and independent providers. At the same time, Geisinger will tap Risant's value-based platform to maximize practices in care model design, pharmacy, consumer digital engagement, health plan product development, and purchasing.

BJC HealthCare and St. Luke's Health System

BJC HealthCare of St. Louis and Saint Luke's Health System of Kansas City signed a letter of intent on May 31 to explore a merger that would create the largest health system in Missouri. The systems are based in Missouri's two biggest cities, with headquarters located about 250 miles apart. The 28 hospitals and scores of clinical venues created by the consolidated system, if approved by state and federal regulators, would serve "two distinct geographic markets," the systems say.

The Impact of M&A on Healthcare Providers

M&A activity has become a popular strategy for healthcare providers to achieve economies of scale, improve efficiency, and gain access to new markets. However, these transactions can also have significant financial and operational implications for the organizations involved.

One of the most significant challenges of M&A activity is the integration of different systems and cultures. Healthcare managers need to carefully evaluate the compatibility of the organizations involved and the potential impact on their operations and staff. In addition, regulatory approval can be a lengthy and complex process, requiring significant resources and expertise.

On the positive side, M&A activity can also offer healthcare providers new opportunities to expand their services and capabilities. By combining forces, organizations can leverage their strengths and create more comprehensive and efficient healthcare systems. For example, a larger healthcare system may be able to negotiate better prices for medical supplies and equipment, reducing costs and improving patient outcomes.

Healthcare M&A activity has returned to pre-pandemic levels, with 20 hospital and health system transactions announced in Q2 2023. While there were three mega-mergers, the number of deals is "on par" with the 19 transactions announced in Q2 2019 and the 21 transactions announced in Q2 2018. Healthcare managers need to carefully evaluate the compatibility of organizations involved in M&A transactions and the potential impact on their operations and staff. However, M&A activity can also offer healthcare providers new opportunities to expand their services and capabilities,leading to more comprehensive and efficient healthcare systems. As the healthcare industry continues to evolve, healthcare managers need to stay informed about these trends and their potential impact on their organizations.