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Dec. 13 — Donald Trump’s election as president doesn’t seem to have slowed down deal activity in the health-care industry, confirming predictions made by Bloomberg BNA’s expert panel.
Bloomberg BNA’s list of select transactions announced or closed in November contains nearly 60 deals. This “may be an early indication that health-care mergers and acquisition activity will continue to be active in the year ahead, consistent with our initial impressions and comments immediately after the election,” Paul Gomez, a partner in Epstein, Becker & Green PC’s Los Angeles office, told Bloomberg BNA. Gomez counsels providers on deals.
The stock market has been very bullish on health-care industry stocks over the past month, which also confirms observers’ post-election thoughts. Stocks in sectors like home health and pharmaceuticals have been closing at record highs.
The list was compiled by financial advisers at Hammond Hanlon Camp LLC, Chicago, with assistance from Provident Healthcare Partners LLC, Boston, and Gomez and Gary W. Herschman, of Epstein, Becker & Green PC, Newark, N.J.
The long-term care and physician practice sectors led November’s list, with 12 and 11 reported transactions, respectively. Coming on strong, however, were deals by and among hospitals and health systems.
The six hospital deals announced in November followed October's announcement of a potential merger between Catholic Health Initiatives (CHI) and Dignity Health, which would create one of the largest health systems in the country.
Nonprofits CHI and Dignity Oct. 24 signed a nonbinding letter-of-intent “to explore aligning their organizations,” according to a statement released by the companies.
Both systems include religiously affiliated organizations. Executives for each said aligning their strengths will help them play a more significant role in the transformation of U.S. health care.
Dignity is a 22-state network of more than 9,000 physicians, 62,000 employees and 400 care centers, and is headquartered in San Francisco. Englewood, Colo.-based CHI operates in 18 states and comprises 103 hospitals.
Discussions are anticipated to continue through early 2017, the systems said.
Factors driving activity in the hospital/health-system sector include providers’ “desire and need for a larger geographic footprint, greater breadth and depth of patient care service line offerings, and greater efficiencies and cost savings achieved through economies of scale,” Gomez said.
Hospitals pursue mergers, acquisitions and affiliations for a variety of reasons, Gomez said. They are trying “to broaden access to patient care, make themselves more attractive care networks for employers and payers, enhance their respective ability to enter into direct-to-employer accountable care organization arrangements, particularly with respect to larger employers, and better manage the health of various patient populations,” he said.
“Solo and small systems are finding it more and more beneficial to partner with bigger systems that are making major investments in infrastructure” to effectively “implement clinical integration and pursue alternative payment methodologies and population health management strategies,” Herschman told Bloomberg BNA.
Year-to-date, there have been 56 hospital and health system deals announced, according to Bloomberg BNA’s data.
Antitrust concerns always arise when large systems serving the same geographic and patient markets come together, but Bloomberg BNA’s attorney advisers don’t see this as impeding future hospital deals.
Antitrust issues arise only when the Federal Trade Commission and/or the Department of Justice’s Antitrust Division “perceive that the deal involves the formation of, or addition to, a major hospital or ‘mega-system,’ and the deal could potentially and negatively impact competition,” Herschman said.
The hospital industry “remains fragmented in many markets, so there are still many hospital M&A deals being pursued” that likely won’t attract the antitrust enforcers’ attention, he said.
Still, given recent government successes in the U.S. Courts of Appeal for the Third and Seventh Circuits, “healthcare providers are actively considering potential antitrust implications of proposed acquisitions and affiliations earlier and in more depth than may have been the case in the past, which is a positive development,” Gomez said.
In FTC v. Penn State Hershey Med. Ctr. , 838 F.3d 328, 2016 BL 317602 (3d Cir. 2016), the appeals court blocked the proposed merger of two Pennsylvania health systems so the FTC could examine the deal’s competitive impact. The Seventh Circuit, in FTC v. Advocate Health Care Network, 841 F.3d 460, 2016 BL 362072 (7th Cir. 2016), reversed the denial of a preliminary injunction, thereby effectively barring the merger of two Chicago-area hospitals.
These cases remind attorneys the enforcement agencies will “aggressively dispute market definition for given services,” along with “how to appropriately define the applicable market for given patient care services, including where patients travel and are willing to travel for such services,” Gomez said.
“This will likely remain a point of contention for the foreseeable future,” he said.
Gomez added, however, “it remains to be seen whether and how federal antitrust enforcement may change under the new Trump Administration.”
The hospital deals listed this month are:
To contact the reporter on this story: Mary Anne Pazanowski in Washington at email@example.com
To contact the editor responsible for this story: Peyton M. Sturges at PSturges@bna.com
The lists of select transactions involving health-care providers, managed care and services companies for November 2016 and for 2016 year-to-date were compiled by health-care investment bankers using publicly available information, including articles, websites and press releases.
The November list is at http://src.bna.com/kJJ.
The year-to-date list is at http://src.bna.com/kJK.
Bloomberg BNA would like to thank its Health Care Transactions Editorial Committee for their guidance: Paul A. Gomez, of Epstein, Becker & Green PC, Los Angeles ( firstname.lastname@example.org); Gary W. Herschman, of Epstein, Becker & Green PC, Newark ( email@example.com); Victoria Poindexter, of Hammond Hanlon Camp LLC, Chicago ( firstname.lastname@example.org); and Robert Aprill, of Provident Healthcare Partners LLC, Boston ( email@example.com).
Epstein, Becker & Green PC did not comment on any particular transaction or party discussed or listed in this article.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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