The hospital market was more active in 2019 than it has been since
2015, with 99 deals reaching the definitive agreement stage or closed. In 2015, 100 deals were announced. In the years in between, deal volume dropped from 89 in 2016 to 81 in 2018. Many not-for-profit systems find themselves on firmer financial ground and are negotiating deals from positions of strength, not fear.
But the healthcare landscape continues to shift, and the role of the hospital is changing with it. In 2020, many hospitals are still the life-blood of their communities, often as the largest employer. But their role as the central hub of all healthcare delivery in the community is lessening, and fast. “Ten to 15 years ago, procedures that used to be performed in hospitals are now performed outside. That takes away a lot of volume,” Patrick Pilch, managing director and national leader of The BDO Center for Healthcare Excellence and Innovation, noted.
That leaves hospitals with higher-acuity patients and care, as the standardized procedures like joint replacements, that are covered by CMS as bundled care payments, are going to ambulatory surgery centers. Another factor is the post-acute care continuum. Because hospitals are geared to treat healthcare emergencies and high-acuity cases, they have viewed patients’ care as an episode. “We do acute care very well here in the United States, but not chronic care,” according to Bobby Guy, shareholder at Polsinelli. “Whenever you’re dealing with professional services, whether it’s a lawyer, a doctor or an architect, you’re dealing with discretion. So it really matters that who you get pays as much attention on Day 3 of your care as they did on Day 1.”
The growing hospital-at-home movement is also impacting patient stays and discharges. Health systems with skilled nursing facilities, inpatient rehab facilities, and long-term care facilities are seeing patients rerouted to lower-cost settings.
Then there’s the growing competition from retail giants like CVS Health (NYSE: CVS) and Walmart (NYSE: WMT). CVS plans to transform 1,500 of its pharmacies into HealthHubs over the next two years after launching three in Houston in 2019 as a pilot. These locations will take-up 20% of the current retail space and provide health services such as diabetic screening, blood tests, and sleep apnea assessments done by nurse practitioners.
Walmart is moving even more aggressively into the healthcare space, although more slowly. Last year it opened its first Walmart Health clinic, a standalone store beside one of its retail centers, in Dallas, Georgia, a
good 32 miles northwest of Atlanta. It recently opened a second health clinic in Calhoun, Georgia, about 70 miles up Interstate 75 from Atlanta. Unlike CVS’ HealthHubs, these clinics offer access to primary care physicians and include services such as X-rays, dental checkups, optometry services and behavioral health counseling. Prices are prominently displayed on digital billboards: $30 for medical checkups, $25 for teeth cleaning and sessions with a mental health counselor for $1 per minute.
Another clinic will open in Loganville, Georgia (36 miles to the northeast of Atlanta), this summer. Georgia did not expand its Medicaid system after the ACA was passed and several upstate hospitals have closed or cut services. It’s not surprising that Walmart’s president of health and wellness, Sean Slovenski, told Bloomberg that patient volume has been “substantially higher than our expectations.”
We’re hosting a webinar on this topic on March 19 called “The State of the Hospital M&A Market in 2020: Regionals Rule” that will explore the changes and discuss how investors should be thinking about them.