Uncertain Future For Hospital M&As

Highlights

• U.S. healthcare companies are likely to see increased M&A activity, with potential restructuring aimed at strengthening their position in the evolving healthcare landscape.

•  “To enhance deal attractiveness, healthcare companies are considering divesting non-core assets and focusing on their primary businesses.

Healthcare organisations and hospitals across the United States are increasingly turning to mergers and acquisitions (M&As) as a strategy to navigate financial challenges, compete with emerging rivals such as retail clinics, and counter the growing influence of insurers. Major mergers in 2024 include BJC HealthCare-Saint Luke’s Health Systems and Froedtert Health-ThedaCare.

Despite rising regulatory barriers, there is a strong economic motivation to keep the hospital M&A trend going, perhaps with a few more bumps down the way.

Government officials take a closer look at healthcare mergers

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) recently announced stronger merger standards in an effort to reduce consolidation. North Carolina’s attorney general is suing hospital conglomerate HCA following its Mission Health acquisition. Recently, John Muir Health and Tenet Healthcare’s merger was postponed due to opposition from the FTC and California.

Hospitals seeking to merge will have a more difficult path ahead as regulators crack down on anti-competitive mergers that might drive up prices and limit patient options. Stricter criteria will need a more in-depth review of merger plans, perhaps delaying certain transactions.

However, the new restrictions’ influence will be realised over time. Regulators are still finding out how to manage more complicated structures, such as cross-market acquisitions. The scenario means that other innovative combinations, such as Risant Health, might emerge in the future.

Finally, significant incentives will keep the transactions moving in the short run. COVID assistance funds are currently depleted. Hospitals continue to confront financial challenges due to rising supply and labour expenses. A recent report suggests that around 30% of rural hospitals, approximately 600 in total, are at risk of closure. For these organisations, merging may be the key to survival.

M&A activity will be driven by strategic objectives aimed at long-term growth

Regional health systems are focusing on long-term growth and merger activity to address challenges like capability or service gaps. The trend is driven by stagnant Medicare rates and powerful insurers looking to bolster bargaining positions.

While hospital mergers are expected to continue steadily, the nature of these deals will vary—from defensive measures to cross-market mergers—driven by strategic imperatives and regional market dynamics. In the post-pandemic landscape, despite regulatory challenges, the pursuit of long-term growth will likely continue to guide these partnerships.