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Mergers and acquisitions: what’s in store for 2016?

Whether they involved health insurers, payers, healthcare systems or pharmaceutical companies, there were many mergers and acquisitions in the healthcare sector once again in 2015. The Affordable Care Act certainly had an impact. It accelerated the two main changes breeding consolidation: competition for individual consumers and the move from fee-for-service to value-based reimbursement.

Bret Schroeder said: For providers, it appears the ACA has been the catalyst for M&A activity. Since its enactment, hospitals started merging with competitors at unprecedented rates. In 2009, pre-ACA, there were 52 announced transactions involving 80 hospitals. That number more than doubled by 2012, with 107 announced transactions involving 244 hospitals.”

Schroeder goes on to say: For payers, the current wave of mergers were an expected outcome of the dynamics of the healthcare industry—declining revenues, large stranded cost structures and demographics.”

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Schroeder concludes by saying: ACA has accelerated these issues due to changes in reimbursement, individual choice in plans and penalties.  I predict this boom will continue, at least through next year, for two reasons. The first is market share capture. For the most part, he says, the market share is fixed, and to capture more generally means stealing it from an existing player.  In any M&A scenario, firms are able to expand their footprint versus competing organically.  The second reason is scale to play. There is a notion that larger entities achieve greater cost efficiency through scale.  While this logically makes sense on paper, in practice it rarely happens, and the efficiency gains rarely happen due to the organization’s inability to take action.  Combining two inefficient organizations does not create efficiency.



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