Health systems are leaning on regional partnerships, local investments in 2021

Regional partnerships and strengthened local markets are so far the standout themes of 2021’s hospital merger and acquisition activity, according to a new report from Kaufman Hall.

During the year’s first two quarters, systems targeted fewer independent hospitals and instead looked to partner with established players in nearby markets, the consulting group found.

Key examples of this strategy include the Rush Health Systems-Ochsner Health and Spectrum Health-Beaumont Health mergers announced in recent weeks.

At the same time, some for-profit players chose to divest themselves from hospitals outside of their core regions and signaled plans to reinvest those funds back into their more established markets.

“For health systems, a focus on regionalization facilitates the sharing of resources within a defined geography, a capability that proved particularly valuable during the heights of the COVID-19 pandemic,” Kaufman Hall wrote. “A robust regional market presence positions health systems to partner with health plans and local employers by offering the necessary scale for population-health-focused initiatives and cross-market access for employees at work and at home. Consumers and local communities also benefit.”

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As a result of these trends, the first half of the year was defined by a low volume of high-value merger and acquisition deals.

According to the report, there were 27 transactions totaling $17.2 billion during the first six months of 2021, yielding an average seller size of $638.6 million. This is a shift from the front halves of 2020, which had 43 deals totaling $17 billion at a $395.5 million per-deal average, and 2019, which saw 46 deals totaling $16.2 billion for a $352.9 million average.

These trends were roughly similar when looking at the second quarter of 2021 alone.

Down the stretch, Kaufman Hall predicted that health systems stabilizing themselves from pandemic disruption “will pursue strategic partnerships that enable them to focus on their own core strengths, while expanding the services they offer to their communities and differentiating their value for consumers, employers and other key stakeholders.”

Moody’s Investors Service and other analysts have suggested mergers and acquisitions will likely ramp up through the end of 2021 as large systems either partner up or deploy their dry powder.

On the other hand, a sweeping executive order signed by President Joe Biden Friday looks to put the squeeze on hospital consolidation. It encourages the Justice Department and the Federal Trade Commission to take a closer look at merger guidelines “to ensure patients are not harmed by such mergers.”