The substantial uptick in hospital and health system merger and acquisition activity is showing signs of a modest slowdown in the third quarter of 2018, following 2017's record-breaking level of transactions, according to the latest analysis by Kaufman, Hall and Associates.
Eighteen transactions were recorded in the third quarter of 2018, a 38 percent decrease over the 29 deals recorded in the third quarter of 2017. Year-to-date transaction totals reached 68 through the third quarter of 2018, compared to 87 deals through the third quarter of 2017.
Despite the drop-off in the volume of deals, total revenue transacted through the third quarter of 2018 was $10.7 billion.
The signature deal that is driving 2018 M&A revenue is the $7.2 billion for-profit LifePoint Health and RCCH HealthCare Partners merger announced in July. If the deal closes, the new entity will include 84 non-urban hospitals across 30 states along with regional health systems, physician practices, and ambulatory care and post-acute sites.
Another significant partnership was announced on October 1 when Memorial Hermann Health System, Houston's largest nonprofit hospital system, and Baylor Scott and White Health, the largest nonprofit system in Dallas, signaled their intent to merge.
The sell-off of for-profit assets also continued in the third quarter, as Tenet Healthcare announced its intention to sell Louis A. Weiss Memorial Hospital, Westlake Hospital and West Suburban Medical Center to an investment firm.
The move eliminates Tenet's Chicago-area footprint, allowing the firm to focus on regions where it has a larger presence and greater market share. Tenet initiated its departure from the Chicago market with the October 2017 announcement of the sale of MacNeal Hospital to Loyola Medicine.
In July 2018, Community Health Systems, which divested 30 hospitals in 2017, announced its plans to sell two of its Arkansas hospitals, comprising the Sparks Health System, to nonprofit Baptist Health in Little Rock. CHS characterizes these sales as progress on strengthening its portfolio.
Alternative transaction models also are emerging, such as the cooperative approach announced by Evangelical Community Hospital and Geisinger on October 1, which allows Evangelical to remain an independent community hospital. The two entities will invest $265 million over the next five years in their shared service areas, and Evangelical will benefit from Geisinger's IT innovations and improved status in the system's health plan.
The slowdown comes after a record-breaking first quarter, with $156 billion in deals thanks largely to pharma giants like Sanofi, GlaxoSmithKline and Celgene, and a pending deal with Takeda Pharmaceutical Company's acquisition of Shire that is valued at $45 billion.
When hospitals and health systems merge they often cite lower costs and operational efficiencies as the main reasons, and a report this year from the National Bureau of Economic Research indicates that savings indeed take place -- but only modestly.