A New Healthcare Regulatory Landscape

The healthcare mergers and acquisitions (M&A) landscape is at a critical juncture. Traditionally, the focus has been on horizontal consolidations to achieve economies of scale. However, the sector is now facing increased scrutiny from regulators, healthcare professionals, and the public. This scrutiny, rather than being seen merely as an obstacle, represents a signal for transformation — a call to realign M&A strategies with value-based healthcare, patient outcomes, and regulatory goals.

The growing examination of healthcare acquisitions was recently highlighted by California Governor Gavin Newsom’s veto of Assembly Bill 3129, which would have given the state attorney general more power to review and potentially block healthcare acquisitions by private equity firms and hedge funds. Newsom argued that the bill was redundant, as California’s Office of Health Care Affordability already reviews healthcare transactions (Cumming, 2024).

The debate over the role of private equity in healthcare highlights concerns over growing consolidation. Critics argue that buyout firms contribute to consolidation, which can reduce competition and raise costs, while supporters assert that private equity plays a crucial role in improving healthcare efficiency and expanding access (Cumming, 2024).

This article explores the future of healthcare M&A through the lenses of both horizontal and vertical integration, offering strategic approaches such as focusing on value-based care and technology-driven acquisitions. By adopting these strategies, healthcare M&A can proactively address public and regulatory concerns while building a more resilient, efficient, and patient-centric healthcare system.

Embracing Vertical Integration for a Patient-Centric Future

Given the increased scrutiny on horizontal mergers, vertical integration has emerged as an alternative strategy that could transform the healthcare landscape by focusing on patient-centered, efficient, and coordinated care. Vertical integration involves combining different parts of the healthcare ecosystem, such as hospitals acquiring home care services or insurers integrating with primary care. This approach enables healthcare systems to provide a more cohesive and streamlined experience for patients while addressing regulatory concerns tied to horizontal consolidation.

1. Alignment with Value-Based Care Goals

Vertical integration is particularly well-suited to support value-based care initiatives, which link reimbursement to patient outcomes rather than the volume of services provided. By coordinating care across different stages of the patient journey — from primary care to post-acute services — healthcare organizations can improve health outcomes and cost efficiency.

Case Example: Amazon and One Medical

For example, Amazon’s acquisition of One Medical in 2023 for $3.9 billion added over 200 medical offices to its healthcare offerings, along with approximately 815,000 One Medical members (Fung, 2023). This move allows Amazon to integrate primary care with its existing telehealth services and streamline the patient journey while aligning with both public expectations and regulatory goals (Fung, 2023).

2. Efficiency Gains Through Seamless Patient Journeys

Vertical integration ensures that patients experience a coordinated journey through the healthcare continuum, from preventive primary care to post-acute home services. This approach not only reduces redundancies in care but also enhances patient experience and health outcomes.

Case Example: UnitedHealth Group and LHC Group

In 2022, UnitedHealth Group acquired LHC Group for $5.4 billion, allowing UnitedHealth to extend care delivery from hospitals to patients’ homes (Yahoo Finance, 2022). This focus on post-acute care helps reduce hospital readmissions and improve long-term outcomes by ensuring effective recovery in home settings, aligning with regulatory goals of improving care quality and efficiency.

3. Leveraging Technology in Vertical Integration

Technology plays a crucial role in successful vertical integration, from telehealth and AI diagnostics to remote patient monitoring. These digital tools allow for proactive patient management, reducing emergency visits and improving chronic disease outcomes.

As highlighted by the Center for Health Care Strategies, tech-enabled solutions such as data-sharing tools, telehealth, and electronic health records can improve care coordination and address the health-related social needs (HRSN) of Medicaid enrollees. With current policy momentum supporting HRSN interventions and partnerships with tech companies, healthcare organizations can leverage technology to bridge care gaps and provide a more comprehensive care experience (Brykman & Joseph, 2024).

Case Example: CVS Health and Oak Street Health

In 2023, CVS Health acquired Oak Street Health for $10.6 billion, adding 169 medical centers across 21 states to the CVS umbrella (Gregg, 2023). This acquisition integrates primary care services with CVS’s existing pharmacy and insurance network, offering a more comprehensive and seamless healthcare experience. It is a step towards expanding value-based offerings and integrating primary care into a larger healthcare ecosystem.

Strategic Solutions for Healthcare M&A Stakeholders

To capitalize on the evolving landscape of healthcare M&A, stakeholders — including healthcare executives, investors, and policymakers — should consider the following strategic solutions:

1. Transparent Stakeholder Engagement

Engaging regulators, physicians, and patient advocacy groups early in the process helps shape the narrative around patient benefits and efficiency gains, which can mitigate resistance and reduce uncertainty around potential deals. Transparency in communication demonstrates a commitment to improving care quality and efficiency.

2. Structuring Deals for Value-Based Outcomes

Successful integration must focus on creating value through better patient outcomes rather than simply adding new services. Emphasizing improved patient experiences and cost savings provides a powerful argument for integration, aligning with regulatory priorities.

3. Prioritize Tech-Enabled Vertical Deals

Tech-enabled healthcare integrations align with regulatory priorities and help maximize revenue potential due to the efficiencies and scalability they introduce. Investments in telehealth, AI diagnostics, and remote monitoring technologies can make these deals attractive to investors while contributing to sustainable healthcare delivery. States are increasingly encouraging Medicaid agencies to collaborate with tech companies and implement solutions to address HRSN, thereby promoting quality and equitable healthcare (Brykman & Joseph, 2024).

What to Expect for the Future in Healthcare M&A

1. Current Trends in Healthcare M&A

Healthcare consolidation continues as hospitals merge to tackle financial issues, counter new competitors, and gain leverage against insurers. In 2023, over 200 health system M&A deals were tracked, reflecting ongoing consolidation (Witowski, 2024).

However, stricter merger guidelines from the FTC and DOJ have led to blocked or abandoned deals, like John Muir Health and Tenet Healthcare, presenting regulatory challenges (Witowski, 2024). COPA laws in some states have enabled regional mergers, bypassing federal scrutiny (Witowski, 2024).

2. Financial Distress as a Driver of Healthcare M&A

Financial distress has become a key factor driving hospital M&As, with nearly one-third of the 65 transactions in 2023 involving distressed health systems — the highest in recent history (Vogel, 2024). Many health systems continue to face high labor and supply costs, pushing them to seek stronger partners to consolidate care networks and optimize resources (Vogel, 2024).

Conclusion: The Path Forward for Healthcare M&A

The scrutiny currently facing healthcare M&A should be seen as an opportunity to rethink and realign strategies. By moving towards vertical integration, value-based models, and technology-driven solutions, healthcare stakeholders can better align with regulatory requirements and public expectations, ultimately building a more effective and sustainable healthcare system. The future of healthcare M&A lies in creating value that extends beyond financial synergies — building healthcare models that prioritize patient outcomes, quality, and access to care.

Call to Action

If you are a stakeholder in the healthcare M&A space — whether an executive, policymaker, or investor — consider how vertical integration and tech-enabled solutions can align your goals with evolving regulatory expectations and public needs. Let’s work together to build a more integrated healthcare landscape that works for all.

References

Brykman, K., & Joseph, N. (2024). Tech-enabled solutions as a tool to address health-related social needs in Medicaid: Opportunities and policy considerations. Center for Health Care Strategies. Retrieved from https://www.chcs.org/resource/tech-enabled-solutions-as-a-tool-to-address-health-related-social-needs-in-medicaid/

Cumming, C. (2024, September 30). California’s Newsom vetoes bill to rein in healthcare buyouts. WSJ Pro. Retrieved from https://www.wsj.com/articles/californias-newsom-vetoes-bill-to-rein-in-healthcare-buyouts

Fung, B. (2023, February 22). Amazon closes $3.9 billion deal to acquire One Medical. CNN. Retrieved from https://www.cnn.com/2023/02/22/business/amazon-one-medical-acquisition/

Gregg, A. (2023, February 8). CVS would add primary care to its health empire with $10.6 billion deal. The Washington Post. Retrieved from CVS to buy Oak Street Health for $10.6 billion — The Washington Post

Vogel, S. (2024, January 19). Financial distress drove nearly a third of hospital M&A in 2023: Kaufman Hall. Healthcare Dive. Retrieved from Financial distress drove nearly a third of hospital M&A in 2023: Kaufman Hall | Healthcare Dive

Witowski, N. (2024). What the future holds for hospital mergers and acquisitions. Definitive Healthcare. Retrieved from https://www.definitivehc.com/blog/hospital-mergers-and-acquisitions#:~:text=Expect%20hospital%20mergers%20to%20continue%20at%20a%20steady,regulatory%20oversight%2C%20and%20nuanced%20by%20regional%20market%20dynamics.

Yahoo Finance. (2022, March 29). UnitedHealth to buy LHC Group for $5.4 billion in home healthcare push. Retrieved from https://finance.yahoo.com/news/unitedhealth-buy-lhc-group-5-4-billion-143015048.html