Read time: 3 minutes
Consolidation and acquisitions in the health care industry have steadily increased in recent years, with payors looking to expand their market share and grow their businesses through mergers and acquisitions. However, the process of acquiring other health care companies, whether plans or providers, appears likely to become more complex as we move into 2023.
One major factor that is likely to contribute to this complexity is the increased scrutiny by state and federal regulators into health care consolidation. For example, California Senate Bill 184, adopted in the 2022 legislative session, will require prior notification of health care transactions, including transactions involving both providers and health plans. Connecticut, Illinois, Maryland, New York and Pennsylvania have adopted or strengthened similar laws in recent years. These laws are generally intended to increase transparency and oversight of health care consolidations to ensure that consolidation does not lead to reduced competition and higher prices for consumers. These state laws also may have the effect of slowing the pace of transactions. Additionally, the Federal Trade Commission has issued statements about the potential antitrust implications of consolidation in health care, indicating that it will be closely monitoring any deals that might reduce competition in the industry.
Other challenges payors may face in acquiring other health care companies include a decrease in available capital, labor challenges and an ongoing overall increase in operating costs in the current economic environment. As a result of these financial constraints, business leaders may be more cautious when considering acquisitions by requiring more due diligence and potentially tightening the terms of any escrows, holdbacks or earnouts.
Health care organizations are also facing rapid changes in how health care services are delivered, with analytics and technology improvements continuing to be a significant focus. The adoption of AI tools, the transition to value-based payments, the use of remote services and the growing preference among patients for a retail experience are all impacting health care. These changes may make it more challenging for payors to align their incentives and compensation with health care providers and intensify an existing struggle to retain practitioners if compensation or equity drops due to declines in revenue or increased costs.
- Increased regulatory scrutiny, recession fears, inflationary concerns and rapid changes in the health care industry will complicate dealmaking.
- Dealmakers will face increasing challenges that may require creative solutions.
- Despite that, the outlook for health care acquisition activity in 2023 is positive.