Healthcare M&A Can Only Grow

Two major hospital acquisitions announced this summer will result in huge hospital networks and likely create pressure for other hospital deals.  Tenet will buy Vanguard Health for $1.73 billion and Community Health will buy HMA for $3.6 billion.

Combined with Vanguard Health, Tenet will become No. 1 or 2 in 19 key markets, including San Antonio and South Texas, Reuters reports. The new company will have a total of 79 hospitals and 157 outpatient centers.

The Community Health-HMA deal will result in a network of 206 hospitals across 29 states.

With healthcare regulations changing under the Affordable Care Act, hospitals are moving toward centralized decision-making to increase efficiency. Consolidation will provide cost synergies for hospitals through economies of scale. More patients and added healthcare services will balance some of the financial squeeze hospitals will feel from lower reimbursements. Hospitals will become gatekeepers on costs – delivering more solutions but also carefully managing costs.

Bigger hospitals mean bigger healthcare suppliers. Companies that provide services like after-patient care and products ranging from IT, software, uniforms, surgical instruments, and medical equipment will be affected.  As hospitals grow and either bring services in-house or demand price concessions from their suppliers, suppliers will turn to acquisition to meet growing demand.

In short, we’ll be seeing increased M&A activity in the healthcare space.

 

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