Healthcare Merger Revenues Reach Record High, Kaufman Hall Finds

July 13, 2022
In a report released on Wednesday, the Kaufman Hall consulting firm made note of the record-breaking revenues involved in hospital and health system mergers nationwide

The wave of large mergers and acquisitions (M&A) that has been cresting lately shows no signs of abating anytime soon; indeed, according to a new report released on July 13 by the Chicago-based Kaufman Hall consulting firm, things are only intensifying now among hospitals and health systems, for a variety of reasons.

The press release announcing the publication of the report began thus: “Healthcare transactions in Q2 of 2022 reached a historic high of $19.2 billion in total transacted revenue, due largely to the planned merger of Advocate Aurora Health and Atrium Health according to ‘Kaufman Hall’s Quarterly Mergers and Acquisitions Report.’ This more than doubles the total transacted revenue of $8.5 billion in Q2 2021, which had a similar number of announced transactions. This quarter also continued the trend of ‘mega’ transactions with two deals featuring a smaller party or seller with annual revenues in excess of $1 billion, as well as two other announced transactions involving a smaller party with annual revenues in excess of $500 million. This signals what may be a long-term shift in hospital and health system M&A toward fewer, but ultimately larger transactions,” Wednesday morning’s press release noted.

As the text of the report noted, “The 13 announced transactions in Q2 2022 were consistent with what we have seen since the pandemic began, with the number of transactions running below historical, prepandemic levels. The size of the Q2 announced transactions—particularly the planned merger of Advocate Aurora Health and Atrium Health—generated an average smaller party size that was more than double 2021’s recording-setting year-end average size of $619 million. For Q2 2022, average size of the smaller party approached $1.5 billion. Total transacted revenue also reached an historic high of $19.2 billion this quarter. This more than doubles the total transacted revenue of $8.5 billion in Q2 2021, which had a similar number of announced transactions.”

Further, the report noted, “In three of the 13 announced Q2 transactions, the acquirer was a for-profit health system. In one transaction, there was an academic/university-affiliated acquirer and there was a religiously affiliated acquirer in one transaction. Other not-for-profit health systems were the acquirer in the remaining eight transactions.”

How SNFs fit into the current M&A wave

The report makes note of an important phenomenon that is currently emerging, around skilled nursing facilities (SNFs) and long-term care facilities, in the context of a major change in federal reimbursement of care delivered in SNFs. It notes that “Recent partnerships around the provision of skilled nursing and long-term care provide an example of a new phase of healthcare partnerships with hospitals and health systems seeking transactions that offer consumers access to new services or enhance the delivery of services that require specialized skillsets.”

Indeed, the report states, “In our 2021 year-end report, we described a new phase of healthcare partnerships that extend beyond traditional horizontal partnerships between hospitals and health systems to include partnerships that can offer consumers access to new services or enhance the delivery of services that require specialized skillsets. We promised to look for opportunities to highlight transactions that illustrate this new phase of healthcare partnerships. In recent months, new partnerships around the provision of skilled nursing and long-term care provide an example. A high-performing skilled nursing facility (SNF) is a critical ally for health systems, particularly those that are focused on performance in value-based care arrangements or looking to enable earlier discharge from inpatient care to the lower-cost SNF setting and help to reduce hospital readmissions. Yet, SNFs face an evolving and increasingly challenging environment,” the report states, noting that, “Effective October 1, 2019, the Centers for Medicare & Medicaid Services (CMS) began using a new Patient Driven Payment Model (PDPM) for SNFs that ties payment to the acuity of the patient instead of the volume of therapy provided.” In that regard, “COVID-19 and infection prevention measures had a particularly dramatic impact on SNFs, posing unique threats to both patients and their caregivers and requiring reconfiguration of facilities to reduce infection risks.”

At the same time, SNFs, “ Like all other healthcare organizations, SNFs are struggling with staffing shortages and wage inflation that could permanently reset their cost structure. These changing dynamics—together with SNFs’ unique operational profile are prompting health systems to reassess strategic options for providing post-acute skilled care. These options could include: sale or monetization of their current SNF assets; partnership (joint ventures, management services agreements, etc.) with specialized SNF operators; or a ‘doubling down’ strategy focused on increased investment in next-generation SNFs (sometimes called ‘super SNFs’) that can accommodate higher acuity patients in a more comfortable and appropriate care environment.”

The entire report can be found here.

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