COVID-19 Has Execs Seeing Healthcare M&A Plans with Fresh Eyes
While some healthcare merger and acquisition plans have fallen apart because of COVID-19, some providers are rethinking potential partnerships to survive the economic fallout of the pandemic.
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By - Nearly a year ago, Rhode Island’s two largest hospital groups decided to walk away from healthcare merger and acquisition talks. But the recent COVID-19 crisis is prompting health system leaders to reconsider a potential partnership.
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Lifespan president and CEO Timothy Babineau, MD, and Care New England president and CEO James Fanale, MD, recently announced that increased collaboration between the two health systems could benefit patient care in Rhode Island.
“During the past few months of the COVID-19 crisis, Lifespan and Care New England have been working together in unprecedented ways to benefit the people of Rhode Island, our patients and employees. As a result, both parties have agreed to enter into an exploration process to understand the pros and cons of what a formal continuation of this collaboration could look like in the future,” Babineau and Fanale said in the joint statement emailed to RevCycleIntelligence.
The process may also include Brown University, which was previously involved in the LifeSpan-Care New England merger discussion a year ago.
READ MORE: How COVID-19 Imperiled Physician Practices, And How to Save Them
But other healthcare organizations are not on the same page with their merger and acquisition plans amid the pandemic. Beaumont Health in Michigan, for example, officially called off its partnership with Ohio-based Summa Health, according to a May 29th announcement.
The health systems signed a definitive agreement in December 2019 to make Summa Health a subsidiary of Beaumont. However, a press briefing held by Beaumont’s CEO John Fox in April revealed the planned merger was delayed as both health systems were “all hands on deck” with managing COVID-19 outbreaks in their communities.
“We didn’t plan this, but we are deferring that until we have a little more clarity about the impact of this crisis,” Fox said at the time.
The COVID-19 crisis is putting pressure on healthcare mergers and acquisitions, whether the deals were planned prior to the pandemic or not.
According to investment bank Juniper Advisory, which specializes in non-profit healthcare partnerships, COVID-19 is going to impact healthcare mergers and acquisitions in several ways. First, the pandemic is creating a buyer’s market in which stressed hospitals are forced to sell for much-needed cash infusions and other support to keep their doors open, explained James Burgdorfer and Alexandra Normington of Juniper Advisory.
READ MORE: 5 Hospital Merger and Acquisition Moves Kicking Off 2020
The pandemic is also prompting hospitals to shift their priorities to clinical and operational effectiveness to maintain stability during the crisis. Unfortunately, while healthcare organizations do that, disruptors will receive more attention by offering innovative services like telehealth. This will create more competition – as well as new partnership opportunities – for providers, Burgdorfer and Normington stated.
In-market collaboration, however, is likely to blossom during the crisis as health systems share best practices to optimize care and independent hospitals coordinate to achieve similar benefits, the experts said.
These factors are already influencing healthcare merger and acquisition trends in 2020.
First-quarter data released by Kaufman Hall in April showed that hospitals and health systems were engaging with merger and acquisition deals at a similar level compared to last year. But there were few large-scale transactions announced during the quarter.
The healthcare consulting firm stated that healthcare merger and acquisition performance data from the first quarter of 2020 will be “an uncertain predictor of activity for the remainder of 2020.” Authors of the report expect the pandemic to prompt many organizations to pause planned deals as leaders think more strategically and reevaluate risks and alternatives.
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But COVID-19 could act as a catalyst for healthcare merger and acquisition activity in the longer term.
“The impact of the pandemic is revealing a new set of positive attributes for larger systems,” the report stated. “The importance of intellectual capital, deployable and re-assignable resources, and a large base of clinical staff and supporting human capital are allowing larger systems to ‘pivot’ to address the current state. A broader base of cash and capital access also helps provide larger systems with the resources that can act as a shock absorber for the unexpected and immediate changes in status quo operations that the pandemic has caused.”
With this in mind, Kaufman Hall predicts the already high level of healthcare merger and acquisition to “recommence and possibly accelerate within this calendar year.”
For LifeSpan and Care New England that rings true. But whether new attempts to partner will end like Beaumont’s efforts to acquire Summa Health remains to be seen.
