Health care M&A: Pharma makes moves, hospitals consolidate, scrutiny grows

Mergers and acquisitions continue to reshape the U.S. health care industry as various sectors seek firm financial footing.

Many experts expect greater scrutiny of transactions in the wake of the massive cybersecurity attack on Change Healthcare, which is owned by UnitedHealth Group. In a congressional hearing earlier this week, questions arose about whether the government wrongly allowed UnitedHealth to grow too big and powerful through mergers and acquisitions, leaving hospitals and doctor practices too dependent on a smaller pool of critical vendors.

Despite the uncertainty, the latest edition of Moody’s Ratings Healthcare Quarterly looks ahead at what the rest of 2024 may have in store.

Pharmaceuticals. Branded pharmaceutical companies will remain eager to pursue acquisitions over the next 12 to 18 months, particularly medium-sized deals in the $3 billion to $15 billion range. These deals offer an opportunity to strengthen product portfolios and pipelines, as well as add scientific talent and research expertise.

Hospitals. The flood of announcements by not-for-profit hospitals about planned mergers, acquisitions, joint operating agreements and other types of consolidation shows no signs of slowing this year. Although certain deals have suffered from poor execution, M&A arrangements generally are credit-positive, providing an opportunity to diversify revenue, generate efficiencies, curb operating costs and increase scale.

Health insurers. Insurers will maintain their focus on M&A as they aim to diversify services, enter new markets and lower costs by accelerating the transition to value-based care, which reimburses hospitals based on outcomes rather than the number of services performed. Industry-transforming deals, however, are unlikely. More limited transactions, which generally are credit-positive as they expand capabilities and geographic reach at a more modest cost, are more likely.

Related: Value-based care gets a boost, as hospital and health care mergers grow

Medical products and devices. Medical device companies will remain focused on spinoffs and selective asset sales. Companies are seeking to bolster underlying growth rates and/or margins; improve focus on and investment in core activities; and monetize assets to facilitate deleveraging through accelerated debt payoffs.

Health care services. M&A activity among health care service providers likely will remain soft over the next 12 to 18 months, with only a modest rebound from recently depressed levels.

Contract research organizations. “The largest clinical research organizations will accelerate the pace and magnitude of acquisitions over the next 12 to 18 months after a letup,” said Vladimir Ronin, vice president and senior analyst for Moody’s Ratings. “The shift to a more acquisitive posture will provide CROs with a source of supplemental growth in the face of slowing demand for clinical and commercial services.”