22 August 2023

Ankura Consulting Group LLC

The healthcare industry is no stranger to mergers and acquisitions (M&A). Over the years, consolidation has played a significant role in reshaping the healthcare landscape, driven by factors such as regulatory changes, technological advancements, and the pursuit of economies of scale. Recently, a new set of trends has emerged, reflecting the evolving needs and priorities of stakeholders within the healthcare space.

Outpatient Network Expansion: Prior to the COVID-19 pandemic, health systems were focused on expanding their outpatient service offerings. Advances in medical technologies, patient convenience, and reduced cost of care fueled much of this shift from inpatient to outpatient services. The pandemic further accelerated this trend, as patients were hesitant to have procedures performed in the hospital setting.

Outpatient service providers, such as ambulatory surgery centers, urgent care centers and physician practices, are experiencing much greater demand and are increasingly attractive investments. For example, HCA has aggressively expanded its urgent care centers through a series of acquisitions. Tenet's subsidiary, United Surgical Partners International, which owns and operates more than 475 ambulatory surgery centers and surgical hospitals, comprises a growing share of Tenet's overall revenue.

Rise of Private Equity and Non-Traditional Players:Healthcare M&A had traditionally been dominated by health systems. However, non-traditional entrants, including retail giants, technology companies, and private equity firms, are expanding their investments in healthcare services. Private equity has become increasingly interested in healthcare investments, with a particular emphasis on physician practices with high-margin procedures and/or ancillary service line revenues. Several physician specialties, such as dermatology, orthopedics, gastroenterology, dentistry and ophthalmology, are key targets for private equity.

Vertical Integration and Care Continuum Expansion: One prominent trend in healthcare M&A is the growing emphasis on vertical integration, where organizations seek to control various aspects of the care continuum. This approach involves the integration of healthcare providers, insurers, pharmacies, and other stakeholders to create a more seamless patient experience. By acquiring entities along the care continuum, organizations can achieve greater coordination, improved patient outcomes, and cost efficiencies. Additionally, as bundled payments gain popularity, vertically integrated healthcare providers can exert more influence over care coordination and potentially generate positive profit margins.

Digital Health and Technology Integration: The rapid growth of digital health technologies has led to a surge in M&A activity. Healthcare organizations are acquiring digital health startups and technology companies to gain access to innovative solutions, enhance operational efficiencies, and expand their service offerings. These acquisitions help leverage data analytics, telehealth, artificial intelligence, and other emerging technologies to transform patient care, drive preventive medicine, and improve operational outcomes.

Health System Consolidation: Mergers of health systems continue to be a trend in the healthcare industry. Rural and community hospitals have struggled to operate at a profitable level and often lack the access to capital necessary to invest in physicians, facilities, and equipment in order to remain competitive. As such, many of these hospitals have partnered with larger health systems in order to continue operations. Despite the recent consolidations, the hospital industry remains highly fragmented and open to further consolidation.

Conclusion: Healthcare M&A continues to evolve, driven by the need for greater efficiency, improved patient outcomes, and enhanced competitiveness. The trends discussed in this article reflect the industry's ongoing transformation, where organizations are strategically aligning themselves to navigate a rapidly changing landscape.

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