The hospital and health system industry had 79 deals in 2020, a 14% decline from the 92 completed in 2019 due in part to the pandemic, a new report found.
The report, released Monday from Kaufman Hall, found that seven of the transactions were mega-mergers in which the seller or smaller partner had more than $1 billion in revenue. The analysis also found for-profit systems were busier than their nonprofit counterparts in terms of deals.
“Many health systems experienced both a liquidity crunch as revenue flows dried up in the wake of canceled procedures, and an ongoing grind of diminished volumes, heightened labor and supply expenses and continued surges of the virus that place extraordinary demands on both frontline staff and management,” the analysis said.
For-profit hospital systems were busier last year. Transactions involving a for-profit partner made up 37% of any deals, compared with 23% the year before.
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The number of sellers who were in financial distress made up 16% of any announced deals, down from the 20% of 2019 transactions, Kaufman Hall added.
The analysis also looked at what is in store for deal activity in 2021. It found that while the pandemic’s impact will lessen with the distribution of vaccines, COVID-19 will be a catalyst for major changes in the healthcare system.
“Demand for telehealth likely will remain above pre-pandemic utilization levels as consumers recognize the convenience of digital services,” the analysis said.
Hospitals also need to broaden their business portfolios and service lines into partnerships with skilled nursing, home health or behavioral health offerings among other types of services.
Systems may also seek willing partners in physicians' offices that may want to consolidate to get more financial security, Kaufman Hall added.
The pandemic’s impact on fee-for-service revenue will also have a major impact on the industry.
“Limitations on fee-for-service payment structures exposed by the pandemic may increase the number of payer-provider partnerships around new payment and care delivery models,” the analysis said.