PwC: 2019 deal activity among health services sector down, with long-term care showing growth

Mergers and acquisitions deals consolidation
A new analysis from PwC found that deal activity in the health services sector is slightly down in 2019. (Getty/Kritchanut)

Deals among healthcare service businesses such as hospitals and physician groups were down slightly in 2019, with long-term and managed care sectors showing major growth.

A new report released Thursday from PwC's Health Research Institute found that in 2019 there were 1,221 deals in the health services sector, a slight 1.5% decline from 2018. The total value of deals was $91.2 billion, down 26.6% compared to 2018. PwC expects healthcare services deals to continue at a robust pace in 2020.

The report focused on deals in the health services sector, which included hospitals, home and hospice business, managed care plans, rehabilitation, physician medical groups labs and behavioral care.

2019 also saw fewer mega-deals, with only one giant deal compared to an average of three a year from 2014 to 2018. However, that one mega-deal was the combination of insurers Centene and WellCare, which at $17.4 billion was the third-largest health services deal since 2014. 

The biggest sector of growth in health services was in long-term care, which had 437 deals in 2019 and comprised 36% of the total volume of mergers and acquisitions last year.

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The managed care sector also grew in volume thanks to the agreement of Centene and WellCare, which will close this week.

PwC doesn't believe there will be a steep decline in deal activity in 2020. However, there are some factors that could impact the direction of deals.

One area is the future of the Affordable Care Act (ACA), which could be struck down by the Supreme Court.

The court decided to not fast-track consideration of a lawsuit by 17 red states arguing the ACA is unconstitutional. The case is now before an appellate court that is considering whether the individual mandate, which a panel of judges ruled was unconstitutional, can be severed from the rest of the law.

The Supreme Court could still hear the case in the fall depending on what the Fifth Circuit Court of Appeals decides to do.

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"It seems likely that dealmakers will be trying to navigate uncertainty at least through the end of the year," PwC's analysis said.

The outcome of the 2020 presidential election could also shape deal strategies in the final quarter of the year.

Another factor is the availability of capital for new deals.

"Private equity firms, for example, are likely to continue seeking value-driven models, especially in growing sub-specialties," PwC said. "Private equity firms also remain potential deals partners for payers and providers.

Health services companies may not make traditional mergers or acquisitions either this year. They are likely to consider "new or modified partnership models, particularly to address social determinants of health and ongoing concerns about healthcare costs and affordability."