Few healthcare mergers seen so far in 2022

Analysts projected an uptick in healthcare mergers in 2022, but there weren’t many in the first quarter of the year.

There were only 12 announced mergers or acquisitions in the first three months of 2022, according to a Kaufman Hall report. That’s the smallest number in any first quarter since 2016, albeit just a hair below last year, when 13 transactions were reported in the first quarter.

Hospitals were flooded with a wave of COVID-19 patients due to the Omicron variant at the beginning of the year, as coronavirus hospitalizations reached a record in January. As hospitals were packed with COVID-19 patients, they had less time to focus on potential mergers.

“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,” the report stated.

Still, the first quarter reflected much of 2021, which was a quiet year for mergers in the healthcare industry.

An analysis by Kaufman Hall identified 49 announced healthcare transactions in 2021, down from 79 the previous year. That marked the lowest number of mergers and acquisitions in healthcare of any year in the previous decade, according to the report.

Still, analysts have projected a rebound in healthcare mergers and acquisitions in 2022, or at least more conversations about mergers, for a variety of reasons.

Experts have said hospitals may need to find partners who can help them in the continued evolution of healthcare. Some hospitals could look at acquiring partners who can help with outpatient services, telehealth programs, or home healthcare, Anu Singh, managing director at Kaufman Hall, told Chief Healthcare Executive earlier this year.

“All alternative sites of care are going to be of interest,” Singh said.

In addition, some hospitals, particularly smaller hospitals facing financial challenges, may see it’s no longer viable to stay independent and may need partners, analysts say.

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The first quarter of 2022 differed from recent quarters in one interesting way. While there have been a fairly small number of merger or acquisitions in recent quarters, some were large transactions of $1 billion or more. That wasn’t the case with the first quarter of 2022.

There were no transactions of $1 billion in the first quarter, and four of the deals involved partners with less than $100 million in revenue, the report stated. The total revenue involved in the transactions was $2.95 billion, well below the $8.8 billion seen in the first quarter of 2021.

In another departure from recent trends, for-profit systems were the seller in most of the deals. In seven of the 12 first quarter deals, a for-profit system was the seller, while a for-profit system was only the buyer in one transaction.

In one deal announced in February, ChristianaCare, Delaware’s largest health system, signed a letter of intent to acquire Crozer Health and its four Philadelphia-area hospitals from Prospect Medical Holdings, a for-profit company. If the deal is finalized, ChristianaCare says it will transition Crozer Health into nonprofit status.

A couple of noteworthy mergers have been completed in recent weeks.

This week, Intermountain Healthcare in Utah completed its merger with SCL Health. The combined system now includes 33 hospitals and 59,000 caregivers. With the deal, Intermountain becomes the 11th largest nonprofit health system in America.

In March, Piedmont Healthcare completed its acquisition of the University Health Care System. Piedmont now operates 19 hospitals in Georgia, the most of any health system in the state.

Earlier this year, KPMG released a report that found most healthcare investors expected more merger activity in 2022. In a survey of more than 300 healthcare and life sciences industry executives, 70% of respondents said they plan to increase their merger and acquisition activity in 2022.

In its January report, KPMG projected larger hospital systems would do well in 2022, but smaller hospitals and systems could have difficulties.

“As smaller hospitals and health systems continue to struggle, many that have remained independent may finally be forced to partner with, or be acquired by, larger institutions,” the KPMG report stated. “We expect the most capable health systems to keep pursuing scale and market-share growth with new business models and revenue streams, as well as a wider range of services.”

Some industry analysts have noted President Joe Biden’s administration is taking a closer look at mergers in the healthcare sector.

In an executive order issued last year to promote competition in the private sector, Biden called on the FTC and the Justice Department to enforce antitrust law vigorously. The White House also directed federal authorities to pay close attention to the healthcare market, including proposed hospital mergers.