More on Mergers & Acquisitions

Hospital merger and acquisition volume in the first quarter was the lowest in nearly a decade

It was the fourth straight quarter in which M&A was lower than the annual quarterly average.

Jeff Lagasse, Associate Editor

Hospital mergers and acquisitions activity in the first quarter of 2019 was sluggish -- so sluggish, in fact, that the number of transactions saw its lowest total since the fourth quarter of 2019. It's also the first since the third quarter of 2016 that had fewer than 20 announced transactions.

All told, there were just 14 deals in the first quarter, according to a report from Ponder & Co. And it was the fourth straight quarter in which M&A was lower than the annual quarterly average.

One of the big reasons for the slowdown was the reduced pace of for-profit divestitures after the frenetic selloff during 2017 and 2018. CHS announced 24 separate transactions in 2017 and 2018, while Tenet and LifePoint combined to announce another dozen divestitures over the same period. QHC, which was spun off from CHS in 2016 with 38 hospitals, announced the divestiture of 14 hospitals, over nine transactions, in 2017 and 2018.

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Another reason for the low deal volume is the "natural pause" that occurs following a period of acquisitions in which the consolidators take the necessary time to digest and integrate their new acquisitions. Tackling the demands of integration, while also addressing the nationwide decline in inpatient utilization trends, consolidators are questioning the need to continue to acquire small community hospitals.

Also, the pool of potential partners for struggling hospitals to join has shrunk, since consolidation over the last decade has reduced their options. The increasing rate of rural hospital closures also indicates a lack of options for struggling facilities.

The report said the reduced volume of M&A transactions marks a shift to slower, more thoughtful and "highly-disciplined" processes. As an increasing number of healthy systems partner with each other, creativity will be needed to structure these alignments in a way that appeals to two healthy systems, as opposed to a simple takeover.

Many health systems are seeking ways to be proactive in their consideration of strategic options, and to identify and approach strategically valuable assets, instead of being reactive to opportunities when they arise.

The report doesn't see hospital M&A winding down. The need to consistently grow at a rate that exceeds persistent expense inflation, reimbursement challenges, technology and capital needs, and the need to adapt to uncertain value-based payer models, continue to pressure hospitals and systems of all sizes. Scale is critical in helping address these challenges, although regional relevance is also essential.

The report suggests health systems assess their strategic position and ability to remain independent in a disciplined manner at least once a year; Continue the pursuit of organic growth strategies; pursue proactive outreach and discussions with systems that could be future partners; consider and study strategic system alignments that are short of change of control; and closely monitor the strategic moves of competitors and new market entrants.


Despite the recent slowdown, 2018 was still a banner year in terms of volume, according to a PricewaterhouseCooper report released in January. Volume was up 14.4 percent from 2017 to 2018 -- good for 1,182 mergers and acquisitions overall, largely driven by a couple of big quarters.

While the volume overall was high, the value of those deals dipped 31.4 percent from the previous year, landing at $121.5 billion. That's still a significant amount,  topping 2015 and 2016 by 1.4 and 1.7 times, respectively.

Twitter: @JELagasse

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