“The consolidation trend among smaller hospitals and health systems that has continued into the first quarter of 2019 is a sign of the increasing challenges faced by those organizations —particularly rural hospitals—in a transformative environment,” said Bill Hanlon, Principal, H2C.

With a market ripe for consolidation, private equity dollars continued flowing into the post-acute space in Q1 2019 as firms sought platform investments to consolidate smaller operators. “Given demographic tailwinds, relative cost advantages, and a favorable Medicare reimbursement environment for players with scale, H2C expects investor appetite in the post-acute care sector to remain robust,” said Victoria Poindexter, Principal, H2C. “Patients continue to prefer home care, while payers acknowledge the benefits of home care.”

As smaller players struggle to manage costs and staffing, H2C expects continued strong M&A activity among LTC and home health organizations.

While ASC transaction volume was low in Q1 2019 compared with both Q4 2018 (40 transactions) and Q1 2018 (72 transactions), ambulatory investments continue to be viewed as a critical strategic move among healthcare organizations—especially large health systems. Last year, large systems such as Tenet planned to increase investment in ambulatory services even as they divested other assets.

“Activity in the behavioral health sector remains robust as demand grows and the highly fragmented sector continues to consolidate,” said Rich Bayman, Principal, H2C. “We are seeing demand increase across all services—inpatient and outpatient, acute psychiatric services, and specialty treatment facilities, including substance abuse and eating disorders. Unfortunately, the healthcare system is not currently configured to handle the explosion in demand, and much of the burden is falling on health system emergency departments."

Notable activity in Q1 2019 include:

• Western Maryland Health System’s plans to affiliate with UPMC. The move will broaden Pittsburgh-based UPMC’s geographic footprint.

• KPC Group’s planned acquisition of four Southern California hospitals owned by Verity Health. KPC Group is the parent company of KPC Health, which operates seven hospitals in Southern California.
   

A planned merger between Palos Health, an independent health system in Palos Heights, Ill., with Loyola Medicine, based in Maywood, Ill., will no longer take place, the systems announced on May 1. Currently, the systems have an academic affiliation, formed in 2015, that enhances Palos’ clinical care and services while enabling the system to remain independent.

If your organization is considering evaluating options and opportunities, H2C is uniquely positioned to bring market insight and expertise to your decision process. Let us put our market knowledge and expertise to work for your institution. Contact an H2C professional directly.