M&A activity among hospitals and health systems picked up last year after that The recent all-time low for 2021. Key trends include cross-market megadeals and academic medical centers expanding their hospital networks into the community. Despite difficult economic conditions, experts at Kaufman Hall expect this activity to continue to grow in 2023, according to a report released on Thursday.
In 2022, 53 M&A deals between hospitals and health systems were announced, generating more than $45 billion in total deal revenue, the report said. This is an increase from the 49 deals announced in 2021.
Last year, the average annual revenue among the smaller party was $852 million. For the larger party, the average annual income is $4.13 million. Fifteen percent of deals in 2022 fall into the megamerger category, meaning the smaller party’s annual revenue exceeds $1 billion.
Some of the largest M&A deals in 2022 were cross-market deals (deals that combine health systems located in different areas with little or no market overlap). The megamerger between Atrium Health and Advocate Aurora Health took first place – the deal created the fifth largest integrated not-for-profit health system in the US
There are also some large cross-market transactions announced last year that may close in the coming months, inclusive University of Michigan Health‘c plan to combine with Sparrow Health System, Essentia Health‘c proposed merger with Marshfield Clinic Health Systemand merger plan announced by Sanford Health and Fairview Health.
Cross-market mergers were a major trend in deals announced last year because they spread the operational risks of the combined system across different markets and often allow organizations to play both urban and rural markets. These mergers do not actually change the competitive structure of the markets involved in the merger because they do not increase the concentration of local hospitals, according to the report.
Another key trend in hospital M&A activity in 2022 was the focus of academic medical centers on expanding their community hospital networks. The planned merger of University of Michigan Health with Sparrow Health, which serves rural Michigan communities, is a case in point. Other examples include UChicago Medicine‘c acquisition of controlling interest in AdventHealththe Great Lakes region (which includes four hospitals in the Chicago suburbs) and Thomas hello‘c integration in WVU Health System in West Virginia.
Kaufman Hall analysts said M&A activity will remain strong because many hospitals believe they need to restructure amid a host of challenges. For starters, hospitals compete with highly capitalized health plans, retail giants and digital health companies. They are also dealing with a huge workforce shortage and many patients are delaying care due to financial pressures.
Earlier this month, Kaufman Hall analyst Eric Swanson said MedCity News that average hospital operating margins are still below zero on a cumulative basis. To fix their dismal financial situation, many hospitals are trying to build a more sustainable organization by seeking economies of scale, the report said.
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