Kaufman Hall: Number of hospital mergers jumped 13% in 2017; M&A momentum shows no signs of slowing down

The number of hospital mergers last year reached its highest point in more than a decade, as other entities push into the provider space, according to a new report. 

Hospitals announced a total of 115 transactions in 2017, according to a report (PDF) from Kaufman Hall, the most since the group began monitoring hospital M&A in 2000. Many of those deals included big price tags—11 deals in 2017 involved sellers with net revenues of $1 billion or more. 

The total number of deals represents close to a 13% increase from 2016, and the Kaufman Hall analysts characterize 2017 as a "transformative year for healthcare deal-making." As the healthcare industry evolves, it's becoming more and more imperative for hospitals to build scale and grow their organizational reach, according to the report. 

The rush to expand comes as other groups, like CVS and Optum, make a stronger push into the providers space. These competitors don't pose a wholescale threat to traditional hospitals and health systems as of yet, according to Kaufman Hall, but they can compete with new tactics that could continue to drive merger activity. 

"Nimble and well-financed competitors see opportunities to cut costs, increase conveniences, and improve outcomes by significantly upping the ante on size and scale, and bringing more efficient and consumer-friendly business models to the market," according to the report. 

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Providers are also watching giants like Apple and Amazon, according to the report. Amazon is licensed as a wholesale pharmacy in 12 states, and Apple has looked into purchasing two medical clinic groups. It also recently launched an iPhone update that brings patients' medical records to the platform. 

Kaufman Hall predicts that momentum in other M&A areas to continue this year as well. The report said the organization expects that hospitals and health systems will continue to purchase other providers along the continuum of care, like physician groups, laboratories and long-term care facilities. 

The report also predicts that providers will continue to make strategic alignments that stop short of full mergers or acquisitions but allow for creative teamwork, a trend the group noted last year

"The cost-cutting mantra of 'do more with less' is juxtaposed with a new imperative—'do more with more,'" the report said. " As organizations look at what they lack and select strategies for closing the gaps, the response has been strategic partnerships to create broader, richer, and more complementary portfolios."