Connect with us

Daily News

Healthcare CFOs see fresh wave of M&A in 2021

Dive Brief:

  • The COVID-19 pandemic delivered an economic shock to the healthcare industry that has accelerated the need for strategic and financial partnerships and should serve as a catalyst for a fresh uptick in deals in the year ahead, according to new reports from consulting firms BDO and Kaufman Hall.
  • Even amid a new surge in COVID-19 infections, industry participants are moving “with haste” to forge these tie-ups, BDO said, with 44% of CFOs surveyed expecting the pandemic to drive an increase in partnerships across the healthcare ecosystem and 42% predicting further consolidation.
  • While hospitals and health systems in particular saw fewer merger transactions in 2020 compared to the year before (79 deals versus 92), the number still is in the historic range of the past 10 years, according to Kaufman Hall. Health systems are expected to forge more alliances going forward, including collaborations with non-traditional partners, to address gaps in infrastructure exposed by the virus.
Dive Insight:

The pandemic paused some deal-making in the healthcare sector in 2020 but a rebound is expected. CFOs in the industry anticipate increased activity in 2021 to be driven by reasons ranging from financial distress to efforts to build scale, capitalize on research and expand into new service areas, BDO said in its 2021 Healthcare CFO Outlook Survey.

Asked about their strategies in the year ahead, CFOs most often cited digital transformation (50%), product or service expansion (47%) and geographic expansion (41%) among their top goals. Other plans include transforming operating models (35%), acquiring physician practices (31%), joining a clinically integrated network (30%), merging with another organization (28%), entering a joint venture (24%) and selling to another organization (20%).

The report identified a surge in demand for virtual and behavioral health services during the pandemic, while consumers postponed primary, dental and vision care. Now, the pendulum may be swinging back. Over the next two years, 77% of healthcare organizations are looking to invest in primary care, 63% in specialty services, 61% in post-acute residential care, 59% in home care, 56% in elder care, 54% in virtual care and 50% in behavioral health, BDO said.

After steep revenue declines experienced during the COVID-19 crisis, CFOs are feeling confident about changes they’ve made and are optimistic for recovery and a return to pre-pandemic performance levels, the report said. Some 70% forecast a revenue increase in the year ahead, while 77% forecast stronger profit and 66% foresee an economic recovery in 2021.

Hospitals and health systems with strong balance sheets at the start of the pandemic that have been able to minimize damage to their operations will be in a position to take advantage of other systems’ divestitures, Kaufman Hall said in its analysis, 2020 M&A in Review: COVID-19 as Catalyst for Transformation. The report suggested healthcare executives will be taking a hard look at underperforming service lines and facilities.

Kaufman Hall said it expects for-profit health systems will continue to make divestitures and refocus on core businesses in an effort to become more resilient. Even as health systems divest non-core assets in areas such as skilled nursing, home health, behavioral health, laboratories and post-acute care, these assets may be replaced by partnerships with specialty service providers to ensure patients still have access to a full range of services.

The report also highlights the need for the building of more regional partnerships to address infrastructure gaps in meeting public health needs.

Demand for telehealth likely will remain above pre-pandemic utilization levels as consumers recognize the convenience of such services, prompting health systems to find a new balance between virtual and in-person visits, the report said. – Medtech Dive

error: Content is protected !!