In 2016 Hospital Merger and Acquisition Activity Will Continue

Published: Jan 26, 2016
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The hospital marketplace continues to consolidate. This is the result of the need to plan for the continuum of care to provide services for a population health strategy. The other major benefit is to leverage the larger size of a health system to gain better reimbursement rates and increase the purchasing power of the organization.

One of the market reasons for this continued consolidation is the merger of some of the largest insurance companies (i.e., Anthem/Cigna and Aetna/Humana). Health systems see this further integration on the insurance industry as a justification to continue to merge on the provider side of the industry.

The Fitch Ratings service predicts that in 2016 for-profit providers are expected to continue to access capital markets to fund further acquisitions. Several of the largest hospital corporations were expected to direct more of the proceeds from their improved operational cash flow in 2015 toward acquisitions in 2016. In a December report, the ratings agency concluded that M&As, alignments, and joint-venture arrangements among not-for-profit hospitals, physicians, and non-acute healthcare providers were expected to “remain brisk” in 2016.

We have seen the Northeast market continue to consolidate at the hospital level (e.g. Hackensack and Meridian Health, Robert Wood Johnson and Barnabas Health and Jefferson Health and Abington Memorial). These mergers should be completed in 2016 and will transform how health care is delivered in the Northeast region.

While health systems continue to acquire physician organizations, we also see a number of physician groups starting to merge with each other. This is especially true for the radiology, urology, and gastroenterology specialties.