Healthcare Merger Activity Hit a Record $19.2 Billion in Q2, Thanks to Some Megadeals

With a record high of $19.2 billion in total transacted revenue, healthcare mergers and acquisitions had a star second quarter in 2022, thanks to some “megadeals” that led to double the transacted revenue from Q1.

According to Kaufman Hall’s Quarterly Mergers and Acquisitions Report, the planned merger between Advocate Aurora Health – which was looking since 2020 into a potential partnership with Beaumont Health that could eventually result in a merger – and Atrium Health was the main contributor to the historically high quarter. 

The smaller party, Atrium, records an annual revenue of $12.9 billion. In megadeals, or mega transactions, the smaller party has annual revenues in excess of $1 billion. 

Other Megadeals Which Contributed to the 2ND Quarter’s Results

The $19.2 billion revenue of the 2022 Q2 is double of the sum healthcare posted for Q2 of  2021, when $8.5 billion in transacted revenue occurred. And the size of the Q2 2022 announced transactions –especially the planned merger of Advocate Aurora Health and Atrium Health – generated an average smaller party size that was more than double 2021’s record-setting year-end average size of $619 million. For Q2 2022, the average size of the smaller party approached $1.5 billion.

Overall, 13 deals were announced in Q2. That’s low compared to some of the numbers seen prior to 2020 when the pandemic hit, but the mega transactions have more than made up for any potential lag in total transacted revenue. In three of the 13 announced Q2 transactions, the acquirer was a for-profit health system. In one transaction, there was an academic/university-affiliated acquirer and there was a religiously affiliated acquirer in one transaction. Other not-for-profit health systems were the acquirer in the remaining eight transactions.

Another megadeal announced in the quarter involved MercyOne and Trinity Health, with the smaller party posting $3 billion in annual revenues. Other two important deals, even though not quite mega transactions, happened in Q2: Bellin Health System/Gundersen Health System (smaller party revenue of $800 million) and George Washington University Hospital/Universal Health Services (smaller party revenue of $600 million).

How Will the Megadeals Impact Healthcare?

With the cancellation of elective surgeries following the outbreak of the new coronavirus, hospitals were bound to take the massive financial strain. A report by the American Hospital Association (AHA) revealed the scale of the financial loss, estimating that hospitals and health systems were losing an average of $50 billion per month due to the coronavirus, back in 2020, which meant hospitals had to find solutions to tamper the financial strain.

The Kaufmann Hall’s 2021 year-end report described a new phase of healthcare partnerships that extend beyond traditional horizontal partnerships between hospitals and health systems to include partnerships that can offer consumers access to new services or enhance the delivery of services that require specialized skillsets. 

In recent months, new healthcare partnerships around the provision of skilled nursing and long-term care provide an example.

Some of the deals extended beyond traditional horizontal partnerships between hospitals and health systems. In late March, Hackensack Meridian Health announced that the majority of its long-term care facilities would be acquired by Complete Care. In April, Virtua Health made public the sale of its two skilled nursing facilities (SNFs) to Tryko Partners, which will continue to operate the facilities with the support of Marquis Health Consulting Services.

Those exemplify an increasing tendency among health systems to reassess strategic options for providing post-acute skilled care, which may include the sale or monetization of their current SNF assets, or partnership with specialized SNF operators.

Changes in the long-term care industry and the desire to reinvest in core services were cited as drivers of these transactions. Hackensack Meridian Health’s press release announcing the deal said, “The long-term care industry has experienced major changes over the last few years as a result of the COVID-19 pandemic, and this decision was made in line with industry trends and best practices.” 

Virtua Health President and CEO Dennis W. Pullin said, “By divesting in the realm of skilled nursing, we are better equipped to reinvest in areas where we can truly make an impact.”

Biden’s Executive Order From 2021 Put a Break to Megadeals 

With no megadeals in the first quarter of the year, total transacted revenue in that quarter was only $2.9 billion, spread out among a historically low 12 transactions. 

An executive order issued by President Joe Biden last summer was conceived to crack down on hospital and health insurance consolidations and other actions it was said would decrease competition and drive up prices, impacting patients. The four areas of healthcare targeted were: prescription drugs, hospital consolidation, health insurance consolidations and hearing aids.

Hospital consolidation has meant bad news for certain areas, especially rural communities, which were left without solid options for convenient and affordable healthcare service, the order said, while encouraging the Department of Justice and the Federal Trade Commission to enforce antitrust laws vigorously and “recognizes that the law allows them to challenge prior bad mergers that past Administrations did not previously challenge.”

Through that order, president Biden encouraged the DOJ and FTC to review and revise their merger guidelines to make sure that such mergers do not negatively impact patients.