Strong M&A ac­tiv­ity … post-acute care con­sol­i­da­tion … con­tin­ued bor­row­ing

Modern Healthcare - - NEWS - By Beth Kutscher

Health­care merger and ac­qui­si­tion ac­tiv­ity is likely to re­main strong in 2016, driven by the growth of value-based pay­ment mod­els.

Pri­vate eq­uity play­ers will con­tinue to scout out pri­mary-care physi­cian prac­tices that have ex­per­tise in the man­aged-care en­vi­ron­ment. There may be more con­sol­i­da­tion of hos­pi­tal-based med­i­cal spe­cial­ties such as anes­the­sia, sim­i­lar to last year’s TeamHealth takeover of IPC Health­care.

Post-acute-care providers have been op­er­at­ing in a frag­mented mar­ket, but that could change as hos­pi­tal sys­tems take on greater re­spon­si­bil­ity for out­comes. And the walls be­tween health sys­tems and in­sur­ers may con­tinue to break down.

Pos­si­ble con­straints to some deals are the fed­eral gov­ern­ment’s tough an­titrust scru­tiny and reg­u­la­tory un­cer­tainty re­lated to the 2016 elec­tions.

Slava Girzhel, man­ag­ing di­rec­tor at KeyBanc, an­tic­i­pates more provider con­sol­i­da­tion be­cause in­de­pen­dent provider groups “are just less able to par­tic­i­pate in value-based care. If you’re go­ing to shrink the pie, you’re go­ing to need to take costs out of the sys­tem.”

Girzhel pre­dicted “post-acute care will prob­a­bly come back in vogue. It has a tremen­dous im­pact be­cause it has a ma­jor re­fer­ral pat­tern.”

On the pos­si­bil­ity of deals be­tween health sys­tems and in­sur­ers, Heather Del­gado, a part­ner in the Chicago of­fice of law firm Barnes & Thorn­burg, pointed to As­cen­sion’s $50 mil­lion ac­qui­si­tion last Fe­bru­ary of U.S. Health and Life In­sur­ance as an ex­am­ple.

On the fi­nanc­ing front, in­vest­ment bankers said they ex­pect cap­i­tal to re­main avail­able to providers and the im­pact of the Fed­eral Re­serve’s in­ter­est rate in­crease to be neg­li­gi­ble.

About 71% of health­care chief fi­nan­cial of­fi­cers who re­sponded to TD Bank’s an­nual sur­vey said they don’t ex­pect a rate in­crease to af­fect their bor­row­ing. About twothirds ex­pect to in­crease their cap­i­tal ex­pen­di­tures in 2016, though 23% said the in­crease is likely to be mod­est.

Deal­mak­ers be­come skit­tish, how­ever, when there’s reg­u­la­tory un­cer­tainty such as a ma­jor U.S. Supreme Court health­care de­ci­sion loom­ing. That cau­tion is likely to grow as the Novem­ber pres­i­den­tial and con­gres­sional elec­tions ap­proach.

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