Hospitals must scale to thrive, but many seeking partnerships just to survive

Hospitals and health systems need to scale to thrive in today's marketplace but with a tumultuous financial year in the rearview mirror and no immediate respite in site, many will pursue strategic partnerships as a way to stay afloat, according to a Jan. 9 report from KPMG. 

Most hospitals, challenged with staff shortages, inflation and rising costs of supplies, energy and capital, are operating with margins in the red or hovering above zero. Some are in tumultuous financial conditions, which is likely to force even some of the largest systems to consider mergers and acquisitions and joint ventures this year.

Many private equity firms and corporate entities may steer clear of the hospital and health system sector, but creative investors may look for assets at lower multiples where prudent management and investments could streamline operations, boost efficiency and bolster operating results, according to KPMG. 

The report indicated that well-managed health systems will have the resources and backing to acquire or partner with other providers in 2023 — especially those in other regions to avoid antitrust concerns. 

On the other hand, in-market deals will likely take the form of joint ventures as health systems strive to improve access and efficiency, particularly in competitive markets and service lines that do not generally drive positive margins. 

Pointing to Nashville, Tenn.-based HCA Healthcare's acquisition of MD Now Urgent Care — a network of 59 urgent care centers in Florida — KPMG is projecting an uptick in in-market deals this year as hospitals and health systems expand ancillary services in urgent care and other areas. 

Nonacute outpatient and virtual care options will grow in line with industry trends and as consumers increasingly demand convenient are closer to home, or, with telehealth, at home. Hospitals may also be forced to take on more risk in exchange for a slice of premiums. According to KPMG, those with innovative care models, unique tech capabilities and robust data analytics will be particularly attractive to investors.

For providers that do take on risk, the rise of Medicare Advantage offers a chance to diversify their business models by launching health plans, the report said.

After a 9 percent rise in enrollment from 2021 to 2022, according to Health Affairs, Medicare Advantage is expected to make up half of all Medicare enrollment in 2023, and under current growth, will hit 69 percent by 2030.

Copyright © 2024 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars