Friday, March 31, 2023 Mar 31, 2023
71° F Dallas, TX
Expert Opinions

Healthcare M&A: What Does the Future Hold in a COVID Landscape?

According to a Bank of America survey, more than two-thirds of healthcare companies are exploring mergers and acquisitions.

Even before the COVID-19 pandemic, Dallas-Fort Worth was a healthcare hub. From traditional clinics and hospitals to biotech and pharmaceutical research, the industry represents about 15 percent of the regional economy and six of the 25 largest employers.

Nationally, the healthcare industry was marked by both mega consolidations and deal breakups in 2020, and it poses the question: How much of a disruption will the pandemic prove to be for healthcare mergers and acquisitions? Will it create a sustained headwind changing the motivations for consolidations? Or a short, albeit intense tempest that may cause payers and providers to take cover before resuming business as usual when the winds calm?

Consolidation Will Continue to Be Strong in Healthcare

Results from the recent HealthLeaders Mergers, Acquisitions, and Partnerships Survey find that stakeholders strongly believe that consolidations will continue to be a significant trend in the healthcare sector – despite the pandemic.

In fact, when asked to describe their organization’s M&A plans for the next 12 to 18 months, 69 percent of healthcare leaders said their organization will be exploring or completing deals underway. Another 68 percent even expect their M&A activity to increase over the next three years. Leaders highlight improving care delivery efficiencies (63 percent), improving clinical integration (59 percent), enhancing clinical talent (50 percent) and expanding into new care delivery areas (45 percent) among their top drivers to consolidate.

The DFW region has seen a significant local wave of healthcare M&A. Texas Health Resources has become the industry model for regional healthcare systems through a series of mergers over the past two-and-a-half decades. Vivify Health, a patient-monitoring start-up based in Plano, was acquired by UnitedHealth Group’s Optum division in 2019. Dallas-based Steward Health Care System was acquired during the summer of 2020 internally by physicians, becoming the largest system owned and operated by physicians in the U.S. Most recently in December, Tenet Healthcare, based in Farmers Branch, purchased 45 surgery centers from SurgCenter Development for more than $1 billion.

Nationally, M&A activity in virtual healthcare services has been soaring. In 2020, Teladoc acquired Livongo for $18.5 billion, merging two of the largest publicly traded virtual care companies. Thirty Madison raised $47 million from partners such as Johnson & Johnson; Humana invested $100 million into Heal and telehealth start-up Ro raised $200 million. Investors are eyeing telehealth as one possible solution to a growing need to manage chronic conditions, which currently comprise more than 75 percent of all healthcare costs.

The coronavirus is also accelerating other motivations for M&A. Hospitals facing economic pressures, particularly smaller, independent hospitals that may have already been searching for a lifeline before the pandemic, may be even more inclined to seek partners.

Experts also tell us they expect much more investment and acquisitions in alternative types of care as efforts grow to invest in new digital technology and point-of-care solutions. And as telemedicine use soars, particularly for vulnerable populations, deals can unleash advancements in areas like video visits, digital and mobile care platforms, at-home services, and advanced home care models.

Key Factors Impacting Healthcare M&A

Critical issues that impacted healthcare mergers and acquisitions in 2020 include compatible cultures, shifting risk tolerance and ongoing stakeholder scrutiny. The pandemic has created uncertainties and concerns over increased operating costs, liquidity stressors, lower reimbursement and reopening risks. Also, macro-economic forces are combining to increase the uninsured and Medicaid populations.

Benefits for Patients, Payers and Providers

Despite existing barriers, senior executives are optimistic that consolidation – when done right – can deliver substantial benefits to patients, payers and providers. According to the HealthLeaders survey early half believe “lower costs for providers” is a key benefit, followed by “better value for patients” (41 percent) and “better care for patients” (38 percent).

One thing remains clear: healthcare leaders who can adjust to reduced risk tolerance, increased investor scrutiny, and a greater focus on alignment, mission and governance are most likely to succeed in today’s healthcare M&A environment.

John Hesselmann is the national head of healthcare, education & not-for-profit at Bank of America, and Perry B. Stephenson is senior vice president, global commercial banking – healthcare finance at Bank of America. 

Related Articles

Doctor syringe

COVID-19 Bulletin (06/08/21)

Researchers are seeking volunteers for a COVID-19 booster shot. Cruise lines are on their way back.

COVID-19 Bulletin (06/21/21)

Should private businesses be able to require vaccination?

COVID-19 Bulletin (06/09/21)

Texas is poised for banner job gains after pandemic. Abbott signs bill to punish businesses that require the COVID-19 vaccine.