Healthcare M&A activity expected to accelerate

The Justice Department’s failure to block UnitedHealth’s failed $13 billion attempt to buy health tech Change Healthcare could bode well for other mega-deals as the country overcomes the pandemic and health-industry players firm their stakes growth plan.

Big picture: The ruling came shortly after an FTC administrative judge denied blocking life sciences company Illumina’s acquisition of cancer-detection company Grail. It underscores that while President Biden’s antitrust team has significantly stepped up scrutiny and litigation, its bark may be worse than its bite, Dan Primack of Axios writes.

at the same time, Large healthcare systems are repositioning into a world with more digital healthcare focused on the consumer experience. Under pressure from staffing and supply costs, the system is evaluating where it can improve profits, investing in satellite clinics and providing care outside of hospitals in some cases.

  • “The art of better, cheaper, faster healthcare is the focus right now,” Anu Singh, a partner in Kaufman Hall’s M&A team, told Axios.

Between the lines: Antitrust regulators have vowed to make health care a key target this year and are increasingly going to court to block deals to satisfy competition concerns.

  • But they lack the resources to go head-to-head with the legitimate interests of powerful corporations.
  • Efforts by Congress to give the DOJ and FTC more power also appear to have stalled.
  • “They’re willing to sue and lose because they think it’s going to increase the pressure on Congress to change the antitrust laws,” Chris Meggins, an analyst at Raymond James, told Axios.

Be smart: The UnitedHealth case proves that companies should expect to go to court and still win, at least in vertically integrated deals where one company’s product is a component or complement of another, Meekins said.

Yes, but: The possible exception is hospital system mergers, which have been thwarted in court.

  • This summer, the Federal Trade Commission sued to block a merger between two New Jersey hospital systems, which then dropped.
  • HCA Healthcare suspends plans to buy five Utah hospitals under threat of legal action.
  • Two Rhode Island hospital systems scrapped a merger plan after the FTC sued to stop the deal.

Although smaller transactions While still possible, horizontal mergers of large healthcare systems can be challenging under the current system, Meekins said.

Between the lines: Tech companies that can offer ways to simplify business would be attractive targets for health systems with cash on hand, Singh said.

  • Big tech will look for larger health system partners, especially those with broad patient bases and diverse geographic footprints, Singh said.

  • But it remains difficult to accurately assess when inflation and the broader market will stabilize.
  • So far in 2022, the number of deals has not reached pre-pandemic levels, but there has been an increase in “mega” deals, with deal value reaching a record high of $19.2 billion, according to a second-quarter report from Kaufman Hall.

Context: Research shows that consolidation leads to higher prices across the system without significantly changing the quality of care or access to it.

  • There is now a wealth of academic research showing that when hospitals have fewer competitors, they can charge insurance companies higher prices.
  • A new study analyzes the largest tax-exempt hospital system merger JAMA study It was found to result in a reduction in charity care at all hospitals involved.
  • Hospital mergers could also lead to lower wages and benefits for healthcare workers, ultimately affecting consumers.
  • Experts recommend improving market competitiveness, not allowing large health systems to engage in unfair contracting practices, and strengthening antitrust enforcement.

Bottom line: With recent acquisition announcements like CVS-Signify Health and Amazon-One Medical, vertical health deals show no signs of slowing down.

  • As the DOJ and FTC continue to target the healthcare industry, the success of the deal may depend on who is trying to acquire whom — and how solid the legal team they can put together.

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