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US health system M&A activity shows no signs of slowing: Moody report

John R. Fischer, Senior Reporter | May 06, 2021
Business Affairs
Hospitals and healthcare systems are expected to continue pursuing mergers, acquisitions and partnerships for diverse reasons throughout the rest of the pandemic
Mergers and acquisitions among diverse health systems are expected to continue throughout 2021 to combat the effects of the COVID-19 pandemic, according to Moody’s Healthcare Quarterly report.

”Larger health systems will pursue M&A to increase market share through geographic and service line diversification. As COVID-19 takes a toll on financial performance, smaller providers will look to partner to gain access to clinical, strategic and financial resources and reduce labor, supply and information technology (IT) expenses. Flush with liquidity, for-profit hospitals will focus M&A efforts on building capabilities in non-hospital settings to meet consumer demand,” wrote the authors of the report.

As more aging Americans enroll in Medicare and higher out of work Medicaid beneficiaries rise, providers are expected to see less reimbursement for services than they would with commercial payers. Many will look for alliances that expand their scale, give them more leverage in negotiating reimbursement rates with payers and allow them to enter new geographic markets.

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Smaller hospitals and physicians groups will look for collaborations that keep them afloat amid rising expenses and lower-than-historical patient volume. Paying back Medicare relief may be a challenge for smaller systems due to lower liquidity and less financial flexibility than larger hospitals. Independent physicians will partner with larger health systems to avoid physician burnout and offset financial blows from elective procedure shutdowns.

For-profit hospitals will also engage in M&A activity but more so to enhance services outside the hospital. As patients seek non-hospital care for convenience and lower out-of-pocket costs, for-profits will aim to expand into these settings, while maintaining market share and augmenting revenue. Examples include ambulatory surgical centers and places that offer telehealth services.

Hospitals and health systems also face new competition from nontraditional healthcare companies. CVS, for instance, merged with Aetna in 2019 and launched the first of its HealthHUBS, which provide certain treatments and services in retail locations. It plans to expand the number of hubs to 1,500 by the end of the year. Likewise, Amazon recently launched Amazon Care, which uses telehealth and stand-alone Amazon health facilities to reduce employee visits to the ER and expensive urgent care centers.

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