2019 saw continued robust healthcare merger and acquisition (M&A) activity, significantly outpacing last year. The increase in healthcare deal volume in 2019 was not confined to any one sector or type of service. Rather, deal volume proliferated across several different sectors.
Hospital and health systems activity was highlighted by a significant number of mergers and joint ventures. Many of these transactions represented regional alliances or consolidations. Notable among them was the announcement of a proposed strategic combination between
Atrium Health and Wake Forest Baptist Health in April. For-profit divestitures of assets that did not fit within owners’ core strategies also represented a significant amount of hospital and health systems transactions this past year, continuing a recent trend.
In the post-acute space, CMS’ introduction of a new Medicare reimbursement model for home health agencies, the Patient-Driven Groupings Model (PDGM), which went into effect January 1, 2020, had a chilling effect on home health activity in 2019 as stakeholders anticipate significant lost revenues in 2020 as a result of the 4.36% reduction to the Medicare base rate in connection with CMS's "behavioral adjustment." However, the slowdown in home health M&A activity diverted more investment toward hospice, including from strategic buyers.
Amedisys Inc. (Nasdaq: AMED) closed its $340 million acquisition of Compassionate Care Hospice in 2019, making it the third largest U.S. hospice provider. It was reported in October that a joint venture between Ascension Health and private equity (PE) firm Towerbrook Capital Partners had agreed to buy Compassus, a hospice and home health provider, for $1 billion. As for private investors, studies indicate that hospice multiples and PE interest in hospice are at all-time highs.
PE firms continue to inject capital into the healthcare industry. This is a mutually beneficial endeavor, it seems, as industry inefficiencies, political uncertainty, an overall demand for cost reduction and the ongoing shift toward value-based payment models has made PE support an attractive option for healthcare businesses with aggressive growth strategies, and has generated attractive returns on investment for the PE firms.
Download Healthcare Transactions: Year in Review to learn more about M&A activity and drivers across the inpatient, ambulatory, managed care, behavioral health and health IT sectors, and what to watch for in 2020.