Healthcare Merger and Acquisition Activity Hit Record Low in Q1 2022

Healthcare merger and acquisition activity hit a record low during the first quarter of 2022, with the industry seeing only 12 transactions totaling $2.95 billion, according to a report from Kaufman Hall.

While transaction numbers had been low in previous quarters during the COVID-19 pandemic, the size of the deals and the revenue they brought in helped offset the disruption in activity. For example, there were only 13 transactions in Q1 2021, but the deals totaled $8.8 billion.

But during Q1 2022, both the number of mergers and acquisitions and the sizes of the deals dropped. 

There have been no mega transactions this year—transactions in which the seller or smaller party has a revenue of more than $1 billion. 2021 had the highest percentage of mega transactions the industry has seen in the last six years, and the average size of the smaller party was $619 million.

During Q1 2022, the average size of the smaller party was $246 million.

Four of the 12 transactions had smaller party revenues below $100 million, while six had revenues between $100 million and $500 million. Two of the transactions had smaller party revenues between $500 million and $1 billion, the report found.

The low number of transactions and the small average seller size contributed to a total transacted revenue of $2.95 billion. This figure was smaller than the Q1 2019 total of $4.9 billion and the Q1 2020 total of $5 billion. The $8.8 billion in Q1 2021 was the second-highest first-quarter total Kaufman Hall has recorded in the last six years.

In 11 of the Q1 2022 merger and acquisition deals, the acquiring entity was a not-for-profit health system. Two of these health systems were academic or university-affiliated, and three were religiously affiliated.

Meanwhile, a record high of 58 percent of sellers were for-profit facilities, compared to 22 percent of sellers in Q4 2021.

In the transactions with for-profit sellers, seven hospitals will be transferred to new owners under transactions involving California-based Prospect Medical Holdings. Prospect is selling Pennsylvania-based Crozer Health, consisting of four hospitals, to Christiana Care. Prospect is also selling Connecticut-based Waterbury Health and Eastern Connecticut Health Network, composed of two hospitals, to Yale New Haven Health.

Following the two transactions, the for-profit hospitals will return to not-for-profit status.

For-profit health systems LifePoint Health, Community Health System, and Pipeline Health also announced plans to sell hospitals in Q1 2022.

The prevalence of for-profit sellers in hospital merger deals started in Q3 2017 when 30 percent of transactions involved a for-profit seller. This figure rose to 45 percent in Q1 2018. But it wasn’t until the COVID-19 pandemic that for-profit seller involvement spiked. In Q2 2020, 52 percent of transactions involved for-profit sellers.

“Hospitals that did not have a strong market presence or financial position going into the pandemic have been under significant strain as infection surges have continued to disrupt operations,” the report stated. “This is likely motivating some for-profit operators to exit markets where efforts to turn around financial performance or seek growth have been unsuccessful, to date.”

The healthcare industry has also seen more merger deals from health plans as they attempt to expand their reach into value-based care and curb consumer healthcare spending. Lately, health plans have been making moves in the home healthcare space.

For example, Humana acquired Kindred at Home last year. More recently, UnitedHealth Group’s Optum announced plans to acquire home healthcare company LHC Group.

In the future, researchers expect to see health systems initiate more vertical partnerships as well, focusing on increasing consumer access to new services and improving the delivery of specialized services.

Although the pandemic has hurt healthcare merger and acquisition activity, the low number of transactions in Q1 2022 was a significant decline. Kaufman Hall researchers said they hope the results from this quarter will be an anomaly as the healthcare industry moves beyond COVID-19-related challenges.