Scale, Technology, and Patient Outcomes – Drivers in Healthcare M&A


The healthcare M&A market is continuing to be a hotbed of activity, and increasingly dominated by consolidation of smaller healthcare entities into larger ones. Whether you’re the director of a small practice or a massive organization, the fundamental rules for success are very similar. Here’s our sketch of the healthcare M&A industry for the next few years.

Trends and Services

An aging population means that healthcare services are growing in all sectors. Lifestyle issues such as opioid dependency, substance abuse, and obesity are major factors in healthcare usage. There’s also growing acknowledgment that behavioral health affects physical health, and remains catastrophically under-treated.

A number of new growth trends create value for patients and systems. There’s an increasing emphasis on patient experience, while improving clinical outcomes in a more affordable health system. There’s a strong push toward affordable modalities of care, such as offering outpatient and clinic services whenever possible. Physicians in these models have witnessed improvements in care quality and long-term outcomes.

Better care coordination and management for people with chronic illnesses can significantly bend the cost curve. We’ve seen a huge surge in prescription drug spending, particularly on specialty drugs. Better accountability and more lifestyle management can yield meaningful shifts in clinical outcomes and a reduction in the use of costly medications.

We also see possibilities in the post-acute space where stronger care coordination can offer options such as short-stay post-surgical rehab. Any clinical management that supports patients to get back home, return to their usual lives, and be more comfortable can offer value and cost savings.

What Fuels Healthcare M&A?

The healthcare services market is probably the most fragmented one in the country. There are approximately 175,000 dentists in the U.S., 85% of whom work in small practices. When these practices are aggregated into one larger platform, it’s possible to invest in automated payments, digital scheduling, and modern equipment that optimize care. Healthcare, on a larger scale, offers increased negotiating leverage, resulting in better patient care and can bring together the fragmented components of the industry.

The Role of Regulation in M&A in Healthcare

The public typically benefits from competition and choice, so regulatory agencies are concerned when large industry players want to grow larger via acquisition. Regulatory processes must assess whether a competitive, safe market remains in place. This consideration can affect dominant hospital systems, especially in rural areas, or regions with limited other options.

What Does an Effective M&A Investment Strategy Look Like?

PE firms are interested in care models that deliver excellent patient experiences and superior quality in an affordable manner. They may also want to help respected practices streamline their operations or fold smaller fragmented practices under the umbrella of larger entities.
The M&A outlook is extremely positive for any entity, small or large, that offers a specific, differentiated model of care with proven outcomes. Clinical outcomes matter, as does patient experience. Accountability is relevant here, too, since insurers want to invest in services that work, and that ultimately drive down costs and reduce the need for more service utilization.

About Edgemont Partners

Edgemont Partners is a specialist healthcare investment banking firm providing the highest level of mergers and acquisitions advisory services to founder-owned and entrepreneur-run healthcare and life sciences companies in the lower middle and middle markets. Our world class transaction expertise is a result of our extensive and proven track record of success. We have advised on over 150 transactions representing more than $60 billion in combined value.