What the Affordable Care Act gave to the hospital sector, in the form of millions of more insured patients, it slowly took away, in the form of declining inpatient visits and growing competition from freestanding emergency rooms, ambulatory surgery centers and urgent care clinics. The ACA’s beneficial effects were largely played out by the third quarter of 2015, and by 2016, the thrill was gone.
Hospital M&A slid slightly in 2016, according to our preliminary year-end data. Eighty-nine hospital deals were announced, down 13% compared with 2015.
Spending was far higher than a year ago, reaching nearly $14 billion, a figure 47% higher than 2015’s combined total of $9.5 billion. Three of the top-five hospital acquisitions were actually foreign-based, in Australia, Spain and the United Arab Emirates. (Although they figure into our annual hospital sector tally, they are not counted in our average price-per-bed counts, etc.)
For-profit hospital chains ended 2016 with losses, after a few wild rides along the way. Community Health Systems (NYSE: CYH) opened the year at $19.26 per share, and closed it at $5.59, a 69.2% plunge. Tenet Healthcare‘s (NYSE: THC) stock price fell from $31.01 per share to $14.84 (-41.4%) by year’s end, and LifePoint Health (NASDAQ: LPNT) stock tumbled 21.4%, to $57.55. Even Universal Health Services (NYSE: UHS) slid 5.8%, from $113.45 per share at the beginning of the year, to $106.38 in December. Little wonder, then, that the not-for-profits were feeling a similar squeeze to their bottom lines.
Merger and acquisition activity in the hospital sector had a different feel in 2016 than in the previous two years. In 2014, with 98 transactions announced, the average number of facilities involved in each deal was merely 1.8. In 2015, the average number rose to 2.6 facilities per deal, and in 2016, the 86 transactions involving U.S. hospital targets averaged 2.1 facilities per deal.
Several small, rural and critical access hospitals changed hands in 2016. Thirty-eight (42%) of the 89 transactions were for standalone hospitals with fewer than 100 beds. Of that group, 10 had 25 or fewer beds, and four were designated as critical access hospitals. In 2015, seven of the 102 transactions were for critical access hospitals.
Bankruptcy proceedings also played a larger role in this sector. The number of targets involved in bankruptcy proceedings rose to 11 hospitals in 2016. Some of the fallout comes from the Chapter 11 bankruptcy filings by Pioneer Health Services in Mississippi and the Forest Park Medical Centers in and around Dallas/Fort Worth.
We’ll have much more detail available on the Hospital sector in our upcoming report, The Health Care Services Acquisition Report, 2017. Publication is scheduled for early April.