Expect M&A Deluge To Continue Through 2018 And Beyond

Capital One Healthcare survey finds industry leaders showing confidence in market trend toward consolidation, overall optimism for 2018. 

Healthcare executives have shown stronger support for using mergers and acquisitions as a primary growth strategy going forward, according to an industry survey.  

Capital One released its annual survey last week of 300 senior healthcare executives. It found significant confidence in the financial stability of the consolidation market. The survey polled leaders of hospitals, healthcare service providers, and health systems, among other sectors of the industry.

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Nearly every leader predicted a stronger 2018 for their companies compared to 2017, with 76% of executives saying the overall business pulse is stronger compared to last year. Perhaps most noteworthy was the fact that 50% pointed to M&A activity as their primary growth strategy for the year ahead, marking a 12% increase from last year’s survey.

“I think you’re going to continue to see a lot of M&A in 2018 and beyond because people are confident and have access to capital,” said Al Aria, senior managing director at Capital One Healthcare.

Aria spoke to HealthLeaders Media about how healthcare leaders are embracing M&A strategies to improve the quality and access of services they provide.

Increasing scale will most likely help health systems drive out the inefficiencies created by weaker players in the industry, Aria said. Smaller players might benefit from larger health systems using available capital to help improve quality of care and outcomes, such as star ratings, he added.  

Aria said the proposed CVS-Aetna merger has drawn significant attention not only for its size but also for two players carrying out distinct functions will join to provide better quality of care for consumers. The move is one of the rare vertical mergers in an industry mostly marked by horizontal activity.

“In order to have a robust M&A market, you have to have confidence in the industry, and you have to have access to capital, and right now you have both of them,” Aria said. “You have people who feel pretty confident about where healthcare is headed, there’s a lot of liquidity in the equity and debt capital markets, and it’s going to drive M&A growth.”

One-third of respondents stated they anticipate an increase in capital needs in 2018. That’s down 9% from last year. Another 62% of executives expect capital needs to remain steady in 2018.

Despite the optimism, senior executives are still keeping an eye on proposed changes to Medicaid reimbursement rates and new policies affecting the Affordable Care Act in 2018.

The Capital One survey ranked regulation and reimbursement challenges as the industry’s greatest concerns, registering at 52%—while another 20% specified that changes to the Affordable Care Act were their primary concern.