‘Larger is bet­ter’

Flurry of deals tied to strat­egy

Modern Healthcare - - THE WEEK IN HEALTHCARE - Paul Barr

The U.S. Supreme Court’s rul­ing in fa­vor of the health­care re­form law at the end of June was a big deal for the in­dus­try, but not big enough to be driv­ing the flurry of merger-and-ac­qui­si­tion ac­tiv­ity tak­ing place at that time, ex­perts say. Trans­ac­tions such as Dig­nity Health’s agree­ment to pur­chase U.S. Health works were driven by the fun­da­men­tal forces tak­ing place in health­care that re­ward size, ex­perts say, and likely would have oc­curred with or without the high court’s up­hold­ing of the Pa­tient Pro­tec­tion and Af­ford­able Care Act.

Other deals that were an­nounced or closed in late June and early

July—about the time of the June 28 rul­ing—in­clude: for-profit Duke Life­Point Health­care’s de­fin­i­tive agree­ment to ac­quire not-for-profit 275-bed Mar­quette (Mich.) Gen­eral Health Sys­tem; the an­nounce­ment that three-hos­pi­tal Care New Eng­land Health Sys­tem, based in Prov­i­dence, R.I., and 159-bed Me­mo­rial Hos­pi­tal of (Paw­tucket) Rhode Is­land had en­tered into part­ner­ship dis­cus­sions; and Com­mu­nity Health Sys­tems’ an­nounce­ment that it had closed on a deal to ac­quire Me­mo­rial Health Sys­tems, York, Pa., and its 100-bed Me­mo­rial Hos­pi­tal. The val­ues of those deals were not yet de­ter­mined or not dis­closed. The ac­tiv­ity in late June and early July was a result of a broader change in per­spec­tive tak­ing place among health­care ex­ec­u­tives. “The health­care in­dus­try is mi­grat­ing toward larger is bet­ter,” said Marc Cabr­era, manag­ing direc­tor and head of the health­care in­vest­ment bank­ing group at Mor­gan Joseph TriAr­ti­san. Larger or­ga­ni­za­tions are in a bet­ter po­si­tion to with­stand some of the loom­ing re­im­burse­ment cuts that are ex­pected from Medi­care and also re­spond to the in­dus­try’s shift to us­ing value-based re­im­burse­ment and ac­count­able care mod­els.

And those types of changes are tak­ing place al­ready among pri­vate in­sur­ers and in Med­i­caid pro­grams, driv­ing much of the in­creased amount of deal-mak­ing this year. “Com­mer­cial and Med­i­caid mar­ket health­care re­form is well un­der way. They’re way ahead of Medi­care,” said Craig Holm, se­nior vice pres­i­dent of Health Strate­gies & So­lu­tions. Com­mer­cial in­sur­ers, for ex­am­ple, have been us­ing med­i­cal homes for years, and the suc­cess they’ve had in pro­duc­ing health­ier pa­tients and re­duced costs are stag­ger­ing, Holm said.

Look­ing ahead to the bal­ance of 2012, fi­nan­cial ex­ec­u­tives ex­pect height­ened M&A ac­tiv­ity to con­tinue with deals com­ing from both pri­vate eq­uity buy­ers and strate­gic deals be­tween in­dus­try play­ers. “I think there will be a fair amount of ac­tiv­ity through 2014,” when many of the ACA’S big­gest pro­vi­sions kick in, Cabr­era said.

Greg Wap­pett, an as­so­ciate with in­vest­ment banker Prov­i­dent Health­care Part­ners, said that M&A ac­tiv­ity could be slowed if Mitt Rom­ney wins the pres­i­dency and the GOP wins enough seats in Congress to re­peal the ACA. That could result in some down­ward pres­sure in M&A ac­tiv­ity, Wap­pett said.

Me­mo­rial Hos­pi­tal of Rhode Is­land en­tered into part­ner­ship dis­cus­sions with Care New Eng­land in June.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.