LS&HC Horizons 2023 - Flipbook - Page 33
Hogan Lovells | 2023 Life Sciences and Health Care Horizons | Transactions
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The rise of super-regional nonprofit health systems
Nonprofit hospitals/health systems, which
account for around sixty percent of the
$1 trillion annual revenue U.S. hospital sector,
struggled financially in 2022 due to rising labor
costs, lower volumes, the end of government
COVID-19 funding and investment losses.
In 2022, the credit outlook for the nonprofit
hospital sector was downgraded to “negative”
(S&P) and “deteriorating” (Fitch). Many
such systems are turning to M&A to gain
revenue, efficiencies of scale, stronger balance
sheets, and to sustain their missions. But
“in-market” expansion has been thwarted by
a more aggressive Federal Trade Commission
(FTC), which successfully blocked four recent
hospital transactions (the one the FTC lost
was defended by Hogan Lovells). Thus, some
nonprofit health systems are looking to
adjacent or entirely separate markets for
M&A (e.g., the Intermountain-SCL Health,
Advocate Aurora-Atrium and EssentiaMarshfield transactions).
range that will look for partners. Health
systems that do not own their own health
insurance plan will consider combining
with ones that do.
Many of these combinations involve a
commitment of future capital rather than
a purchase price. Governance issues, both
board and management, are also critical
issues, as are plans for market growth. The
most common transaction structures are
member substitutions and joint operating
agreements. Realization of projected
efficiencies requires effective execution and
post-closing integration. We expect the rise
of “super-regional” nonprofit health systems
will continue in 2023 and beyond.
Some of these market extension transactions
are true acquisitions while others are
“combinations of equals”. There are many
systems in the $2-$10 billion annual revenue
Clifford D. Stromberg
Partner, Washington, D.C.
Michael C. Williams
Partner, Washington, D.C.
Michael W. Snow
Counsel, Washington, D.C.
