A confluence of regulatory challenges and price pressures are driving a new wave of merger and acquisition activity in the healthcare industry.
The volume of deals in the area of health services has been on a steady climb; growing from about 375 transactions in 2009 to more than 600 in 2012, according to a recent assessment by PricewaterhouseCoopers.
In financial terms, there were close to $1.9 billion in hospital transactions in 2012, more than $4.4 billion in transactions involving physician groups and $18.8 billion in managed care transactions, PwC found.
While the volume or value of deals may fluctuate slightly from quarter to quarter, the factors that drive them remain steady:
Continued uncertainty over healthcare payments to providers: Medicare’s physician payment formula, the Sustainable Growth Rate, has been subjected to constant last-minute legislative tinkering–often to remain at the same rate as the previous year– with private insurance rates based off of that formula.
The impact of the ongoing implementation of the Affordable Care Act: This legislation not only increases the number of people eligible for insurance coverage, but also establishes new incentives for healthcare organizations to prevent re-hospitalizations. The result has been added pressure for non-profit hospitals to seek additional funding through merger activity and hospitals looking to acquire physician practices, PwC research shows.
Needed capital investments in infrastructure costs: Providers are facing pressures to upgrade their electronic health record systems. Such price pressures almost certainly will continue to force smaller providers to seek the “lifeline” of a larger provider, PwC projects.
The formation of accountable care organizations (ACOs), a shared savings model designed to foster cooperation among healthcare providers to improve patient care and lower costs.
Payers also have gotten into the act, trying to increase market share by buying up competitors and provider networks. The ACO model is the perfect vehicle for such provider-sponsored managed care organizations, PwC believes.
With the biggest components of the ACA set to be implemented in 2014—the health insurance exchanges and expanded Medicaid coverage—expect deal-making and opportunities to engage in other transactions to be robust.
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