Upward trend in merger, acquisition activity continues with nonprofits leading the charge

Hospital and health system partnership and merger transaction continue an overall uptick, jumping 55 percent from 66 announced in 2010 to 102 in 2016, management and consulting firm Kaufman Hall said in an analysis released earlier this week.

Data shows a slight dip from last year, when there were 112 deals announced during what Kaufman says was a year of significant growth. Still, the numbers show continued growth since 2010.

"The overall trend demonstrates that transactions are on the rise as organizations across the country seek to build capabilities and scale for healthcare's transition to a value-based care delivery and business model," Kaufman Hall said in a statement.

[Also: Merger activity among physician medical groups stays steady in fourth quarter 2016, data shows]

In looking at the credit ratings of the organizations involved in these deals, there was a noticeable upward swing in transactions with financially healthy hospitals and systems. In the past, partnership deals mostly involved larger systems expanding by acquiring smaller struggling entities. However, the analysis showed that from 2010 to 2016 the number of target organizations with credit ratings of A- or better went from one to 10, peaking at 13 in 2015.

"Decisions about whether to pursue partnerships increasingly are strategic in nature, rather than purely financial," said Patrick Allen, Managing Director at Kaufman Hall. "... As the pool of smaller, independent hospitals and health systems shrinks, we are seeing more transactions among larger, more stable organizations that are opting to partner to help meet evolving demands and bolster market essentiality for the new healthcare era."

Nonprofits are proving to be a powerful driving force in mergers, acquisitions, and partnerships. Data showed In 2016, 74 of the 102 transactions involved a nonprofit health system as the acquiring entity. Another 27 had for-profits as the acquiring party.

[Also: Tracking 2016 mergers and acquisitions]

HCA and Kaleida Health were the single biggest acquiring organizations, with four transactions each in 2016, Kaufman Hall said.

Faith-based and academic health centers were also forces in acquisitions, with 16 and 17 transactions respectively. Operating revenues for acquired organizations in 2016 totaled more than $22 billion.

According to the analysis, the largest merger deal announced in 2016 involved two nonprofit Catholic healthcare systems. Colorado-based Catholic Health Initiatives, a system that sees $14.5 billion in revenue, and San Francisco-based Dignity Health, who sees $13.3 billion in revenue, announced plans to merge. If completed, the deal will create the nation's largest nonprofit health system, and will serve almost a quarter of the U.S. population.

The states with the most merger and acquisition activity were Texas with 17 transactions, and New York with six, Kaufman hall said.

Twitter: @BethJSanborn