Hospital Merger Volume Down in Q4

An industry facing major headwinds, such as rising labor and operation costs, staffing issues, and increased pressure from companies like CVS and Walgreens moving into outpatient care resulted in a tough Q4 for hospitals

Health system mergers highlight that scale and market penetration is the best way to compete in a tough market, according to acquisition data firm LevinPro HC.

But hospital M&A activity slowed in Q4:2022, according to a new LevinPro report. There were 19 deal announcements, a 10% decline compared with the third quarter of 2022. Fourth quarter activity nearly matched Q4 21 transactions when 18 deals were announced.

Expansion Plans Delayed

Mark Ustin, partner in the regulatory & government relations practice of Farrell Fritz, tells GlobeSt.com that the uncertainty during COVID, and the possibility of another recession coming out of the pandemic, has made many providers put off their expansion plans.

“Couple that with the fact that many community hospitals – traditional targets for system acquisition – had already been acquired, and it is no wonder that there was a slowdown in 2022,” Ustin said.

“But as it becomes clearer that the economic picture is not as dire as some feared, it is likely that hospital systems will resume their plans.

“Very often, that will involve providers outside of hospitals, such as long-term care, behavioral health, development disability, or other healthcare services, as well as community-based organizations providing food, housing, education, and other health-related social needs.”

Lower Margins and Cash Reserves

Mitch Creem, principal at GreenRock Capital, tells GlobeSt.com that 2022 proved to be a difficult year for hospitals and health systems across the country, as evidenced by lower overall margins and cash reserves.

“Rising labor costs, staff shortages, continuing supply chain issues, and softening demand continue to present major challenges to hospital operators,” Creem said.

“Additionally, the implementation of the No Surprises Act in January of 2002 has created significant obstacles to balanced provider/insurer rate negations going forward. It’s not surprising that M&A activity has cooled somewhat as healthcare systems sort through the current morass of issues.”

Deal Volume Mostly Large Systems

Announced spending reached $821 million in Q4, a decline of 89% compared with the previous quarter.

“Transaction volume may have slowed, but mergers between large health systems revealed an active market nonetheless,” Dylan Sammut, Editor of Health Care at Irving Levin Associates, said in a prepared statement.

Most fourth-quarter transactions targeted systems and organizations with more than 100 beds and several facilities. More than 5,000 beds and 45 hospitals were acquired or involved in a merger.