PwC: Healthcare is still hungry for consolidation, even as deal value dips 

The healthcare industry hasn’t lost interest in consolidation, but the value of deals has taken a dip, according to a new report.

PricewaterhouseCoopers released its quarterly look at healthcare deal-making and found 261 deals in total were announced in the third quarter of 2018. That's on par with recent quarters; the number of deals has exceeded 250 in the past five, and there have been 200 or more since the fourth quarter of 2014.

The value of those deals, however—$15.9 billion in total—reached its lowest level since the first quarter of 2017 and represented a 35.8% decrease from the second quarter of this year and a 10.1% decrease from a year prior.

There was just one megadeal reported last quarter, PwC said: RCCH HealthCare Partners’ $5.6 billion purchase of LifePoint Health.

Thad Kresho, U.S. health services deals leader at PwC, told FierceHealthcare the industry's interest in consolidation isn't likely to slow down even if the overall value of deals ticks down a bill. He said that in a number of deals his team monitors, an asset they pegged as low-value sold at a far higher-than-expected price.

“I think there’s still a good bit of runway to go,” Kresho said, “but you’re going to run out of good assets eventually.”

RELATED: Hospitals may not be ‘gobbling up’ physician practices, study finds

A trend that could be playing a role in the decrease in value is the rise of more nontraditional partnerships and affiliations, Kresho said. Providers are growing more interested in teaming up with other stakeholders, such as retail networks, instead of fully integrating.

These partnerships can be a less-costly and time-consuming way for stakeholders to expand their service offerings and continue the drive to "be all things to all people," he said. For example, Bon Secours Virginia and VCU Health continue to treat one another as rivals in some areas, but decided earlier this year to begin collaborating when it came to filling a need for thoracic surgery services in their area.

Private equity firms are also still in the driver’s seat in healthcare deal-making, Kresho said. Their growing interest in this sector was a trend PwC flagged in its previous report, noting that these firms have invested heavily in learning more about how healthcare works because they see so much value in the industry.

They also play a role in driving up the value of deals, Kresho said.

The Department of Justice’s approval in two headline-grabbing megadeals, the planned mergers between CVS Health and Aetna and Cigna and Express Scripts, also colors the deal-making landscape significantly, according to the report. That's especially true as DOJ spiked the Anthem-Cigna and Aetna-Humana mergers.