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COVID-19 driving M&A activity and changing healthcare business model

por John R. Fischer, Senior Reporter | January 13, 2021
Business Affairs
COVID-19 has acted as a catalyst rather than a deterrent for strategic partnerships and mergers and acquisitions among healthcare providers
Mergers and acquisitions among hospitals and health systems have remained strong, with a total of 79 deals taking place in 2020, including seven mega mergers between companies with over $1 billion in revenue.

In a new report, Kaufman Hall attributes this trend to the pandemic itself, saying that the virus may actually be a catalyst rather than a deterrent for strategic partnerships and tactical transactions.

"The COVID-19 pandemic added momentum to an even more powerful force: the ongoing transformation of healthcare to embrace new models of care, population management, and increased collaboration by providers and insurers. In addition, health systems with access to more resources are better positioned to respond to COVID-19 outbreaks, whether through separate facilities for COVID and non-COVID patients, or redeploying staff," Anu Singh, the report's author and a managing director with Kaufman Hall, told HCB News.

While the number of M&A deals was significantly lower than the 92 deals completed in 2019, it was marginally higher than a decade low of 74 back in 2010. In addition, the number of mega mergers surpassed the three made in 2019.

The pandemic is expected to change the healthcare business model over the next few years by introducing new strategic requirements. For instance, telehealth is expected to remain above pre-pandemic utilization, while elective procedures shut down when the virus first arose will recover slowly. Greater emphasis to address social determinants of health and treat chronic conditions are also on the minds of providers, as is a desire to pull their assets out of non-core areas such as skilled nursing and behavioral health and invest them in partnerships with specialty service providers that can help maintain full range of services for patients.

These shifts in priorities, according to the Kaufman Hall report, entitled 2020 M&A in Review: COVID-19 as Catalyst for Transformation, indicate a growing resiliency among providers who are anticipating the disruptions they will face in the next few years brought on by the pandemic.

"We are already observing that organizations that entered the COVID-19 crisis with strong balance sheets, and have been able to avoid or minimize significant operational damage, are attractive potential partners," said Singh. "Achieving this level of resiliency will require the strategic redeployment of all available resources, and a relentless focus on performance improvement."

He adds that despite mitigation through immunization and behaviors such as mask wearing, social distancing and increased sanitization, the pandemic is "illuminating the capabilities health systems will need to mitigate future outbreaks. Key resources may include disaster and surge planning capabilities, the ability to deploy resources and staff to address critical community needs, and more proactive, wellness-focused programs."

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