Strategic Partnerships Mergers and Acquisitions

Hospital M&A Deals Slow in 2018

January 14, 2019 9:41 am

For-profit acquisition activity dried up in 2018, while large independent hospitals and health systems ramped up their activity, according to deal watchers.

Jan. 11—Hospital transactions declined in 2018, amid a shift in the most active types of organizations.

Although firms that track—and participate in—hospital deals define them differently, they agreed that the volume dipped last year.

For instance,’s preliminary analysis found only 67 deals in 2018, which was far fewer than in any of the past five years. In both 2017 and 2016, the company identified 82 deals—defined as mergers and acquisitions (M&A) that reach the definitive agreement stage. The organization identified 95 deals in 2015 and 92 in 2014.

There were a few factors behind the dip in 2018 deal volume, said Lisa Phillips, editor of

“First, some of the publicly traded companies—Community Health Systems, Quorum Health, and Tenet Healthcare—have been actively divesting poorly performing facilities, or ones in markets they deemed ‘non-core.’ Those programs have largely come to an end,” Phillips said in an interview.

Additionally, the merger of Catholic Health Initiatives and Dignity Health, which was announced in December 2017, still hasn’t closed, and that has kept some hospitals off the market, Phillips said.

“Once that merger closes, we could see a few more regional systems change hands,” Phillips said.

Ponder & Co also found hospital transactions declined in 2018, to 108—from 118 deals in 2017. However, the 2018 total was higher than the average of the last five years, during which 2017 was the peak and 2016 (88 deals) was the low point.

For-profit acquisitions are at their lowest levels in a decade, and their divestitures are at the highest point over the same time frame, said Jake Aygun, vice president at Ponder.

For example, for-profit acquisitions comprised 18 percent of 2018 deals but averaged 28 percent of total deals over the last 10 years, according to Ponder. That downturn followed a “robust” period of acquisitions by for-profits in 2015 and 2016, Aygun said in an interview.

“That led to a long period of digestion,” Aygun said. “Maybe in hindsight they reached out too far over their skis.”

Similarly, Kaufman Hall pegged total announced deals in 2018 at 90, down from 115 for 2017.

Other 2018 Trends

2018 also was notable for the increasing size of hospital transactions, said Anu Singh, managing director of Kaufman Hall. The average size of a seller by revenue has increased at a compound annual growth rate of almost 14 percent annually since 2008 and reached a new high of $409 million in 2018, according to Kaufman Hall calculations.

“Having a year where you’re looking at a significant number—seven in this year—of organizations that are $1 billion-plus in net revenue as the smaller party in a transaction is really noteworthy,” Singh said.

Similarly, Ponder saw a 2018 surge in M&A activity by larger independent hospitals and health systems, specifically those with annual revenue in the range of $250 million to $2 billion, Aygun said. Those organizations strove to increase their market footprints and “become more regionally relevant.”

“They had enough powder dry and hadn’t had as much recent acquisition activity, so they have the ability and appetite to go after these targets in their respective markets,” Aygun said.

Phillips of noted that 2018 included a lot of transactions in which small rural and community-based hospitals found larger regional partners to help them financially.

“That trend will definitely continue in 2019,” Phillips said. 

However, Kaufman Hall’s data indicated that such deals were a smaller share of total transactions in 2018 than in previous years.

“What I think we’re seeing is a bit of a crowding out of those financially driven transactions with ones that are far more strategic in nature,” Singh said.

Among strategic goals that have become more evident is the effort to “control health care’s ‘front door,’” Kaufman Hall noted in a report on 2018 M&A highlights.

Hospitals and health systems are girding to compete against new market entrants—including tech giants Alphabet, Amazon, and Apple—that will look to exploit their scale and capital resources to quickly build a presence in the markets they decide to enter, the report stated.

New entrants to health care are focusing more on transactions in consumer-centric areas, such as ambulatory care, said Singh.

“There aren’t organizations that are dying to get into the inpatient business at this point,” Singh said.

Instead of an explicit response to those new entrants, hospitals’ strategic M&A is focused on locations of their sites of care, ways to more efficiently deliver care, and ways they can combine forces to more effectively address the marketplace disruption, Singh said.

“It’s taking the skills and resources that hospitals and health systems have and recalibrating them to what the consumer or patient or payer demands are going to be in the future,” Singh said. “And that’s moving them in the direction of either combining forces or rethinking how they deliver care.”

Although regulators and politicians have criticized the increasing hospital M&A trend of recent years as primarily aimed at strengthening local-market share and negotiation leverage with commercial insurers, Singh said that is an outdated view.

“Organizations are thinking about transformation, more in terms of care delivery and efficiency,” Singh said. “I don’t believe [payer leverage] is a principal driver of some of this activity.”

Legal and regulatory impacts on hospital M&A activity continued in 2018.

“The enforcement agencies have focused highly on inpatient market share, historically, as a rubric,” Singh said. “And the way the industry is transforming right now, that leaves a potential disconnect with where organizations are focused, in terms of strategy and growth.”

He is hopeful that regulatory agencies will adopt antitrust metrics beyond market share to determine when to launch enforcement actions.

“That would allow a more holistic evaluation of where and how competition has really come into this space and where competition is going in this space,” Singh said.

2019 Outlook

Ponder advisers said they expect 2019 M&A volume to remain steady as for-profit divestitures continue.

Organizations that are expected to continue their M&A approach include those that are implementing a continuum-of-care strategy and looking to establish acute sites of care, said Singh. More activity likewise is expected among health systems looking to leapfrog into new markets or states.

“We’re continuing to see those types of transactions over and over,” Singh said.   

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Email Rich at [email protected]. Follow Rich on Twitter: @rdalyhealthcare


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