Hospital and health system mergers involved even bigger players in 2018 as the average seller size hit $ 409 million in revenue, a new report indicates.
The size of the health system seller “has grown at a compound annual growth rate of 13.8% since 2008 ,” consulting firm Kaufman, Hall & Associates says in its annual healthcare M&A report. The report defines the seller as the smaller of the two health systems involved in the deal, according to Kaufman Hall’s healthcare M&A report.
The trend comes as medical care providers look to grab scale to compete with national health insurers and outpatient medical care providers entering their markets. Just last month drugstore giant CVS Health completed its acquisition of Aetna, the nation’s third-largest health insurer, for $ 69 billion.
“What we’re seeing is a move toward strategic growth, driven in part by the need to acquire expertise and resources to manage the industry-wide changes facing hospitals and health systems,” Kaufman Hall managing director Anu Singh said in a statement accompanying the report. “These include changes in payment and care delivery models and the push for greater value, but also the emergence of new competitors that bring significant capital resources and strong capabilities in both digital technology and consumer experience to healthcare.”
Hospitals and health systems are consolidating to fend off these new players with access to massive amounts of capital like CVS and UnitedHealth Group’s Optum health services business.
The Kaufman Hall report shows 7 transactions in 2018 involved hospital and health system sellers with $ 1 billion or more in annual revenues . As one example, Dallas-based Baylor Scott & White Health and Houston-based Memorial Hermann Health System in 2018 agreed to merge into a 68-hospital system with a combined market share that draws patients from the Gulf of Mexico north to Oklahoma.
Unlike the mergers of large publicly-traded providers and insurers, hospital and health system deals are dominated by nonprofits. “A not-for-profit system was the acquirer in 75% of transactions in 2018, tracking closely with the numbers from 2015 and 2016,” the Kaufman Hall report said.