No letup seen in con­sol­i­da­tion

Modern Healthcare - - SPECIAL REPORT - —Beth Kutscher

For in­vestor-owned health­care providers, the story of 2013 is ex­pected to be sim­i­lar to the nar­ra­tive of 2012: con­sol­i­da­tion, con­sol­i­da­tion, con­sol­i­da­tion.

For-profit hospi­tal sys­tems are ex­pected to con­tinue, and even ac­cel­er­ate, their ac­qui­si­tion spree in the new year, as they seek to gain even more strength and scale.

The debt and eq­uity mar­kets will re­main open to th­ese chains, which will also be able to dip into the healthy amounts of cash sit­ting on their bal­ance sheets, says John Stein, who leads the for-profit health­care busi­ness in the Nashville of­fice of Bank of Amer­ica Mer­rill Lynch. “I think we’ll see for-profit en­ti­ties ac­quir­ing not-for-profit en­ti­ties, and for-profit en­ti­ties ac­quir­ing for-profit en­ti­ties,” Stein says. “There’s so much mo­men­tum around con­sol­i­da­tion—I just don’t see that slow­ing down.”

Stein also ex­pects to see sim­i­lar deal­mak­ing ac­tiv­ity in the post-acute space, par­tic­u­larly home health and hospice, which has been heav­ily ex­posed to re­im­burse­ment pres­sure from government pay­ers. “I be­lieve those two ar­eas hold tremen­dous abil­ity to take costs out of the sys­tem,” Stein says. “Re­im­burse­ment at this point doesn’t re­flect that. I think there’s a sim­i­lar con­sol­i­da­tion story at play.”

Burk Lind­sey, a man­ag­ing di­rec­tor at the health­care in­vest­ment bank­ing group of Ray­mond James Fi­nan­cial, also pre­dicted that provider merger-and-ac­qui­si­tion ac­tiv­ity— par­tic­u­larly for large trans­ac­tions—could pick up in the coming year, as un­cer­tainty around the fu­ture of the health­care re­form law has dis­si­pated.

And he notes that it’s not only hos­pi­tals, but also com­mer­cial health in­sur­ers that will look to di­ver­sify, par­tic­u­larly to gain ac­cess to the dualel­i­gi­ble pop­u­la­tion, those who qual­ify for both Medi­care and Med­i­caid. “We’ve seen a fair amount of deal­mak­ing in Med­i­caid man­aged care,” he says.

But while the en­vi­ron­ment looks ripe for deals, a num­ber of trends will con­tinue to weigh on the sec­tor. Stein notes that pa­tient-care vol­umes are likely to once again be “fairly soft” in 2013, as in­di­vid­u­als con­tinue to put elec­tive pro­ce­dures on hold. Re­im­burse­ment is also ex­pected to re­main un­der pres­sure, he says.

Michael Water­house, a re­search an­a­lyst at Morn­ingstar, notes that un­cer­tainty con­tin­ues to ex­ist around how fed­eral spend­ing is­sues will be re­solved—and how large any provider rate cuts will be—as well as the num­ber of states that will choose to ex­pand their Med­i­caid pro­grams. Still, he says, “I don’t think there’s go­ing to be too many sur­prises. I think it’s go­ing to be a pretty quiet year.”

Wel­lPoint closed its $4.46 bil­lion ac­qui­si­tion of man­aged-care com­pany Amer­igroup on Dec. 24. In­sur­ers are ex­pected to con­tinue to di­ver­sify this year.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.