Hospital M&A Activity Expands as IT Plays a Key Role

In the second quarter of 2016, there were 27 announced hospital transactions, up 3.8 percent from 26 deals recorded in the second quarter of 2015.

health it and m&a

Hospital merger and acquisition activity remained strong in the first half of 2016, according to a report by Kaufman, Hall & Associates, identifying 52 hospital and health-system transactions—an increase of 6.1 percent from 49 transactions recorded in the first half of 2015.

Looking just at the second quarter of 2016, there were 27 announced transactions, up 3.8 percent from 26 transactions recorded in the second quarter of 2015.

Of the 52 transactions in the first half of 2016, 39 involved acquisitions by not-for-profit organizations and 12 involved acquisitions by for-profit organizations. One transaction involved a not-for-profit/for-profit combination.

"Hospitals, health systems and other healthcare providers across the country are working to build new capabilities for a value-based payment and care delivery model, and information technology is a critical component in those efforts," Anu Singh, managing director of Kaufman, Hall & Associates, told eWEEK. "The expense and time involved in developing the necessary IT platform is one of many key factors being considered as organizations examine potential partnership options."

Singh noted larger merger discussions in particular focus on IT and health information capabilities, and in some cases, these capabilities are becoming important drivers in partnership transactions.

"Information technology is helping healthcare organizations better streamline care delivery, coordinate care among different providers, reduce costs, build efficiencies and identify areas of potential improvement in both operations and clinical care—all of which are essential to success in today’s rapidly changing healthcare environment," he said.

The largest deal announced in the second quarter of 2016 was Universal Health Services’ $445 million acquisition of the remaining interest in Valley Health System, which encompasses six acute care hospitals in Las Vegas.

"Healthcare transformation rewards those organizations that can utilize data to evaluate where operational and clinical performance can be enhanced," Singh said. "Information technology, including data analytics software and enterprise performance management software, play a critical role in helping hospitals achieve financial success."

He noted controlling costs continues to be the top concern for hospital leadership, with most relying on technology to track costs, uncover cost patterns and trends, identify opportunities for cost savings, and measure the success of ongoing cost control initiatives.

"Financial planning efforts, including long-range planning, capital planning, scenario modeling, budgeting, forecasting and benchmarking, must be tightly integrated with cost-management initiatives to provide a continuous view of financial performance and to fuel optimization efforts," Singh said. "Such efforts demand resources and investments that require scale to justify. Such scale is often developed through partnership transactions."