The hospital M&A market experienced some significant changes last year. In the United States, the rush to regionalize tapered off in 2019, after four years of multi-hospital transactions. The market for long-term acute care hospitals (LTACHs) was hopping, unfortunately driven by a couple of large bankruptcy proceedings. Deals either targeting or involving critical access hospitals (CAHs) ticked up slightly. And the divestiture programs of some for-profit chains began to wind down.
In all, 74 U.S. hospital deals reached the definitive agreement or finalized stage in 2019, excluding foreign deals and those made by real estate investment trusts (REITs). The total is 12% more than the 66 deals reached in 2018. The majority of 2019’s transactions (77% and 57 deals) targeted a single hospital, compared with 68% (45 deals) for standalone hospitals in 2018.
Once again, not-for-profit systems were the dominant acquirers. Some 56 not-for-profits acquired a total of 69 hospitals, including eight CAHs. Most of their targets were other not-for-profits. Of the 56 deals struck by not-for-profit acquirers, 42 of those included 48 acute care hospitals and three CAHs. Twenty-three LTACHs changed hands last year, all but one of those as a result of a Chapter 11 bankruptcy proceeding. Nine LTACHs were sold as part of LifeCare Holdings’ May 2019 filing. Those were acquired by Post
Medical, LLC. Promise Healthcare’s November 2018 filing resulted in four deals selling 13 LTACHs to various buyers.
The only non-bankruptcy deal came from HCA Healthcare (NYSE: HCA) as it sold its long-term acute care operations located in its HCA Houston Medical Center’s North Tower to Cornerstone Health Group Holdings, a
portfolio company of Highland Capital Management. Critical access hospitals, a special federal designation for certain rural hospitals with 25 beds or fewer, were taking some hard knocks even before the Affordable Care Act was passed in 2010. The bill mandated $4 billion in cuts to Medicaid Disproportionate Share Hospital (DSH) payments between 2018 and 2025, which small rural hospitals depend on to stay afloat. Many CAHs have closed, and more are joining larger regional systems that are able to absorb their losses while extending their own regional brands and footprints.
In 2019, 12 CAHs were part of nine deals with larger systems, only slightly higher than the 11 CAHs acquired in 2018. The for-profit divestiture programs begun by Community Health Systems (NYSE: CYH), Quorum Health Corporation (NYSE: QHC) and Tenet Healthcare Corporation (NYSE: THC) in 2016 have ended or are winding down. All were prompted to jettison underperforming and/or non-core assets to pare down large debt loads.
Through December 31, 2019, Community Health sold 66 hospitals and closed two, according to its annual report. In 2019, it made five deals to offload eight hospitals. Tenet ended its divestiture program with the sale of two Memphis-based hospitals to local not-for-profit Methodist Le Bonheur Healthcare. Quorum Health sold two hospitals in California and Texas to privately held Halsen Healthcare LLC and Steward Health Care System, LLC. It’s still divesting in 2020.
We’ll have much more data on hospital M&A and healthcare services transactions in The Health Care Services Acquisition Report, scheduled to be published later this month.