Frost & Sullivan: US Healthcare Provider M&A Activity Fueled by Low Margins and High Compliance Costs
Merger and acquisition (M&A) activity is gaining pace in the U.S. healthcare provider industry as companies attempt to recover from the reduced profitability and operating margins caused by the economic downturn. The industry sees M&A as a key means to reverse the trend of declining profits as they boost economies of scale and provide access to more capital, which is required to comply with the various regulatory standards.
New analysis from Frost & Sullivan's Analysis of Mergers and Acquisitions Trends in the United States Healthcare Provider Industry reveals the volume of M&A deals has increased from 199 in 2007 to 260 in 2013. In particular, the post-acute care, surgical and emergency center segments are expected to drive M&A activity in the U.S. healthcare provider industry.
"The full-fledged implementation of the Affordable Care Act – that aims to improve access to healthcare among U.S. citizens – is expected to drive consolidation in the healthcare provider industry over the next 12 months," said Frost & Sullivan Business and Financial Services Research Analyst Dr. E. Saneesh. "While the regulation is likely to foment a modest rise in hospital revenues in the short term, the influx of new, insured patients will prompt the government to introduce cuts in Medicare and Medicaid reimbursements in the long run, thus adversely affecting the financial performance of healthcare providers."
The M&A trend is also being fuelled by other factors that are hurting healthcare providers' bottom line. This includes the charges levied on hospitals that get admissions due to hospital-acquired conditions, the Hospital Readmissions Reduction Program that imposes penalties on hospitals with high readmission rates, and value-based purchasing that ties hospitals' performance to reimbursement rates for Medicare patients.
"In the coming years, healthcare real estate investment trusts will stimulate M&A activity in the U.S. healthcare provider industry," added Dr. Saneesh. "Future M&A deals will also witness more participation from private equity investors as healthcare providers seek capital to cover rising compliance costs."
Finally, acquisitions in the healthcare provider industry will become more local, resulting in regional consolidation. Increasing local presence will enable healthcare providers to offer end-to-end care, spread fixed costs, and leverage the advent of state-based health insurance marketplaces.
Analysis of Mergers and Acquisitions Trends in the United States Healthcare Provider Industry is part of the Business and Financial Services in the Healthcare Industry (http://www.financialservices.frost.com ) subscription, which also includes research services in the following markets: Private Equity and Venture Capital Investment in the Global Pharmaceutical, and Biotechnology Industry, and Merger and Acquisition (M&A) Trends in the Global Pharmaceutical and Biotechnology Industry All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants.
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