Mission Health-HCA adds to vigorous pace of health system M&A in 2018, with deals expected to grow larger

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2018 hospital and health system dealmaking is off to a strong start. (Getty/Martin Barraud)

Hospital and health system merger and acquisition activity in the first quarter of 2018 exceeded the number of deals during the same period the last two years, according to analyst firm Kaufman Hall.

Kaufman Hall Managing Director Anu Singh told FierceHealthcare there were 31 announced transactions from Jan. 1 to March 31, compared to 30 in the first quarter of 2017 and just 25 in first quarter 2016.

But perhaps more notable is that the size of the transactions continues to increase. Singh said the activity validates a major theme from Kaufman Hall’s 2017 year-end report.

“Of the 31 deals in Q1-18, three involved systems with $1B+ in revenue and four with a $500-$1B revenue base that were seeking a larger system partner,” said Singh.

He added that 2018 will likely be a year where large organizations seek even larger partners. That was certainly the case with Mission Health’s March 22 announcement that it will sell to HCA Healthcare.

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Asheville, North Carolina-based Mission Health employs nearly 11,000 people, making it the region’s largest employer. The nonprofit health system also boasts a total economic output of $1.75 billion annually for the 18-county region.

Nashville-based, for-profit HCA Healthcare is an even larger player and reported a profit of $2.2 billion in 2017. The deal will add Mission’s seven hospitals to HCA’s 177 hospitals and 119 surgical centers in the U.S. and United Kingdom.

Singh said the distinction between for-profit and nonprofit health systems in dealmaking is becoming less important than the strategic fit and overall alignment.

“The efforts that HCA has undertaken to pursue market-based strategies and to build solid regional systems likely resonated well with Mission, as it considered options of where and how it could grow,” said Singh.

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He added that Mission was such a large and stable organization, economics were likely only part what made the deal appealing. Established health systems often focus on a partner’s confidence in executing a growth strategy as a key value of the deal, said Singh.

“What is unique about the HCA-Mission transaction is that most of the other for-profit systems have been in ‘sell’ mode, as they look to prune their portfolios and address leverage issues," he said. "The fact that HCA has migrated to a more regional market base of operations supports our previous observations that partnerships with a solid strategic rationale offer a more attractive growth strategy than acquiring and amalgamating smaller and geographically disparate hospital assets, without a solid base of operations that offer a market-relevant presence."

He added that, as for-profit shift their focus to regional system development, deals won’t be limited to the largest players.

“We do expect options for smaller health systems to increasingly consider models like the one Mission pursued,” said Singh.