PwC finds hospital and physician practice deals down in Q1

In its quarterly analysis of healthcare merger and acquisition activity, PricewaterhouseCoopers LLP, concludes that compared to the first quarter of last year, 2014 so far is fairly soft in announced deals for hospitals and physician practices even thought the incentives to merge are still strong.

“Hospital deal activity may be experiencing a short-term slowdown as buyers and sellers digest the large-scale deals announced in 2013 by Tenet Healthcare and Community Health Systems,” the report authors wrote.

The total volume of hospital transactions PwC tracked was down from 21 in Q1 2013 to 12 in Q1 2014, a decrease of nearly 43 percent, the report noted.

Physician practice mergers are not always announced the way hospital mergers are, but here too the trend was for a slowdown in deals. The report notes that tellingly, physician practice management companies were the sole source of buyers for the nine announced deals PwC tracked. This could mean that hospitals are moving away from the purchase of physician practices as just a way to shore up a strong source of referrals and instead taking a more strategic look at which acquisitions can help them expanding into more outpatient services.

PwC’s findings echo those of the financial analyst firm Irving Levin Associates of Norwalk, Connecticut, which also found a decline in healthcare merger and acquisition activity. (Read more here.)

The PwC report did not discuss what effect if any increased oversight of healthcare system mergers by the Federal Trade Commission (FTC) and states may have had. In Q1, Beacon Health System and the South Bend Clinic physician group suspended their merger plans because of a longer than expected FTC review and uncertainty over whether the deal would be approved. In addition, Q1 also saw the Sixth U.S. Circuit Court of Appeals in Cincinnati uphold the FTC’s ruling that a merger between ProMedica and St. Luke’s, a community hospital in Toledo, Ohio, was a violation of the Clayton Act.