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Hospital Deals Slow Down in 2nd Quarter

Hospital merger & acquisition (M&A) activity in the second quarter of 2018 decreased by nearly 50 percent from the first quarter according to a M&A tracking company. Analyses by other companies that track M&A activity reported a similar decrease.


However, physician practice acquisition remained steady in the second quarter.


Irrespective of these numbers, hospital M&A activity is expected to remain high in upcoming months because many health systems are in the beginning stages of discussions. Also, regional health systems are positioning themselves for future growth, according to a tracking company, citing letters of intent to affiliate issued by several organizations.


A recent survey of system executives by Premier found that nearly half of the systems had completed a merger or acquisition in the past two years and 77 percent expected to do so in the next two years. (To read the survey results, click here.)


Some analysts have questioned whether aggressive M&A is financially benefiting hospitals and health systems. And CMS has frequently questioned whether consolidation has benefited communities.


HFMA reported on a not-yet-released Navigant analysis of 104 of the largest U.S. health systems. The analysis “found 22 locally dominant systems each had operating earnings declines of more than $100 million from FY15 to FY17.” (“In Q2, Hospital M&A Slows, Practice Acquisition Stays Flat,” HFMA Compass, August 2, 2018)


From FY15 to FY17, two-thirds of the 104 health systems had declines in operating income that totaled about $5.5 billion. More than 20 percent of the health systems Navigant studied lost money on operations in both 2016 and 2017. However, those losses were masked by their investment earnings.


“It is so sudden and it is so weird because it’s happening at the top of the economic cycle,” a Navigant adviser said. “Usually hospitals’ profits disappear after a recession.” (“In Q2, Hospital M&A Slows, Practice Acquisition Stays Flat,” HFMA Compass, August 2, 2018)


The financial challenges have been compounded by expenses that have risen three points faster than revenues, consumer-directed health plans that have cut into consumer demand (particularly for surgeries), and “mergers that didn’t make sense,” the analyst added. (“In Q2, Hospital M&A Slows, Practice Acquisition Stays Flat,” HFMA Compass, August 2, 2018)



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