Complex Reasons Why Healthcare M&A is Booming

Some experts see the frantic healthcare M&A activity as a pure response to healthcare reform. However, all of this deal-making indicates a long-overdue restructuring of the industry among other highly complex factors. Health systems are trying to solve for equally powerful forces: a more precise payment setting and increasingly savvy consumers. Cohesion of business models and technologies is another major factor behind the M&A boom.

Allina Health and Health Catalyst represents the best example of cohesion, by recently announcing a partnership to combine technologies, clinical content and front-line personnel in an effort to improve the quality and lower the cost of care. Ultimately, health systems have to differentiate themselves on how they meet the needs of an increasingly demanding consumer marketplace and essentially do a lot more with a whole lot less.
Many providers are facing stagnant to declining revenues and faltering inpatient growth. Outpatient volumes is expected to soar 21% while inpatient demand drops 4%, an extraordinary decline given changing U.S. demographics. Hospitals should look to cut 15-20% of their operating structure and not surprisingly, they look to mergers as the solution. The track record on cost savings from health system consolidation is still mixed however and some are predicting the demise of the independent hospital. Though, there is still room for a broad range of organizations considering local market dynamics and diverse mechanisms minimizing costs.

Consider Community Health Systems, which just announced its plans to shed 38 hospitals in smaller markets. In addition, there are certain community-based hospitals and systems that are indispensable in their local markets and have the potential to survive and even thrive in today's market. In the end, the chaotic transformation of the healthcare industry continually strives to meet the demands for access and quality at a lower price point.

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