Healthcare M&As will pick up steam throughout 2021

Mergers and acquisitions (M&As) among hospitals, health systems, and health insurers are projected to ramp up for the remainder of 2021, according to Moody’s quarterly reports. In particular, large hospitals and health systems are expected to expand their geographic footprints and diversify their services with digital health via M&As, and health insurers are expected to increasingly scoop up digital health startups to build out their tech capabilities and offset rising healthcare costs.

Health systems and payers have been turning to M&As despite pandemic-related setbacks, especially in the last two quarters:

• Hospitals with strong digital health infrastructure in place were better equipped to weather the pandemic—which prompted greater M&A activity by health systems. While US hospitals and health systems lost nearly $203 billion in the first few months of the pandemic, per the AHA, institutions that already had digital health capabilities or quickly implemented them fared better: For example, CIOs from Penn Medicine and Seattle Children’s Hospital said telehealth tools were key to their pandemic response. In turn, many larger health systems have been pursuing M&A deals to build out their digital health capabilities to bolster interoperability, meet patient demand for telehealth, and provide themselves with a financial cushion. Meanwhile, smaller hospitals folded to M&A deals from larger institutions to secure financial stability during the pandemic.
• In Q1 2021 alone, major payers made blockbuster M&A deals with digital health companies to offer their members more products, streamline patient-provider communication, and boost efficiency of existing healthcare processes. For example, UnitedHealth made a $13 billion acquisition of Change Healthcare, and Cigna bought telehealth unicorn MDLive.

As the boom in healthcare M&A activity is projected to continue, it’ll encourage health systems to undergo sustained digital transformation—which could pave the way for a rebound from financial hard times.

• Healthcare CFOs think the pandemic is a catalyst for more M&A activity down the road: 28% plan to pursue healthcare mergers, and 18% plan to pursue acquisitions, according to BDO’s 2021 Healthcare CFO Outlook survey.
• Moreover, half of healthcare CFOs say digital transformation is a top priority for 2021. Ramping up telehealth, for example, can help health systems boost revenues through an additional channel of care. And investing in AI could streamline healthcare operations help cut costs.