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MGMA: Healthcare seeing another M&A boom

After three years of stagnant business, America's healthcare system is seeing another round of consolidation, with clinical integration leading the way.

That was the message relayed by Mark Reibolt, CPA, managing partner and chief executive officer of Coker Capital Advisors of Alpharetta, Ga., who spoke at a packed education session at the Medical Group Management Association’s Annual Conference in New Orleans.

“Consolidation occurs when there is a perfect mix of uncertainty and opportunity;," he said. "Clinical integration has been the key ingredient in making that happen."

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Reibolt noted that this has happened before – 1994-96 saw an approximate 60 percent increase in mergers and acquisitions, while the years 1995-2000 saw an increase of hospitals in healthcare systems from 38 percent to 52 percent.

There has been a steady increase since then, he said, with a bump in the road caused by the recession.

Access to credit has increased during this decade, encouraging activity, but the nation has seen a downward trend within the last three years, said Reibolt. Activity fell by 35 percent from 2007-09, while median transaction values were down by 57 percent.

There were only 48 transactions total in 2009, Reibolt said, with a median transaction value jof a little more than $15 million – a 26 percent decrease from 2008.

With the increase this year in M&A activity, he said, clinical integration has become the predominant strategy  among hospitals, health systems and physician-led medical groups. This is intended to move providers closer to an integrated delivery system of care.

Physicians are ultimately driving the growth in the industry, he said.

“This time around it’s a partnership between organizations and physicians,” said Reibolt. “And there is an emphasis on IT integration and continuity of care.”

Transaction activity is occurring in all segments of the industry and activity, valuation and multiples are increasing, Reibolt said. However, only two medical networks have gone public in 2010.

Reibolt said M&A activity is undertaken to accomplish one or more of three objectives:

  • Investment return/exit;
  • Overcome regulatory burden;
  • Operational stability.