Only 12 new hospital merger and acquisition transactions were announced during the opening three months of 2022, continuing the pandemic-era trend of shrinking deal volumes in the hospital sector, according to a new Kaufman Hall report.
In addition to tallying the lowest number of quarterly deals since the analyst began tracking hospital merger and acquisition activity in 2016, 2022’s first quarter was a departure from other recent low-volume quarters due to the relatively small size of the deals themselves.
“Since the pandemic began, we have consistently seen fewer transactions per quarter,” Kaufman Hall wrote in the report released Thursday. “The small size of transactions in Q1 2022 is, however, a departure from the high percentage of mega transactions we have seen during the pandemic. The pandemic has affirmed the imperatives of scale and we expect that this quarter’s results will prove to be an anomaly as we (hopefully) move beyond the COVID-related distractions that health systems have faced over the past two years.”
None of the quarter’s 12 hospital deals had a seller or smaller party with revenues exceeding $1 billion, Kaufman Hall wrote.
The average size of a hospital seller or the deal’s smaller party was $246 million in the first quarter, whereas the average size across all of 2021 was $619 million, according to the report. A third of the quarter’s deals’ involved a smaller party with average revenues below $100 million, six had annual average revenues between $100 million and $500 million and two had revenues between $500 million and $1 billion.
As a result, the total amount of transacted revenue during the first quarter of 2022 was just under $3 billion, down from the $8.8 billion in the first quarter of 2021, the $5 billion in the first quarter of 2020 and all other first quarters dating back to 2016, Kaufman Hall found.
Looking at the deals themselves, the analyst found that a larger percentage of the announced transactions (58%) involved a for-profit seller.
Kaufman Hall characterized the finding as an acceleration of a portfolio realignment trend the group has been monitoring since 2017, where for-profit health systems like Prospect Medical Holdings, LifePoint Health and Community Health Systems are transferring ownership in order to exit or scale down their presence in certain markets.
Beyond hospital transactions, Kaufman Hall’s report also called attention to the recent vertical integration strategies of national health plans—for instance, Humana’s acquisition of Kindred at Home last year or last month’s announcement that UnitedHealth Group would be purchasing home-based health operator LHC Group.
Kaufman Hall said provider organizations are likely gearing up to make similar acquisitions to strengthen their appeal to consumers.
“We believe that health systems also are moving into a new phase of vertical partnerships that focus on offering consumers access to new services or enhancing the delivery of services that require specialized skill sets,” the group wrote in the report. “These partnerships will become increasingly important as a variety of organizations compete for control of healthcare’s front door and consumers’ medical spend at the local, regional, and national levels.”