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The Evolution of the Health Care Landscape in 2023: Mergers, Integrations, and Market Changes

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Mason Walker
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The Evolution of the Health Care Landscape in 2023: Mergers, Integrations, and Market Changes

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The health care landscape in 2023 was shaped by significant changes, largely influenced by vertical integration, hospital mergers, and important small deals. These developments had a direct impact on the industry and its stakeholders, transforming the delivery of care and patient outcomes. The finalization of new merger guidelines by federal regulators, such as the Federal Trade Commission (FTC) and Department of Justice (DOJ), had significant implications for the future of health system mergers and acquisitions, potentially increasing regulatory scrutiny of health care transactions.

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The Implications of Vertical Integration, Mergers, and Small Deals

Vertical integration, hospital mergers, and a series of smaller yet significant deals characterized 2023's health care industry. The updated federal merger guidelines expanded the regulators' review scope, leading to increased scrutiny and risk in clearing deals. These guidelines aimed to limit certain types of consolidation, prevent potential competitors from entering the market, and reduce organizations' incentives to pay higher wages.

The merger guidelines affected cross-market health system mergers, acquisitions of physician practices by hospitals and insurers, and the labor market. They also had implications for companies' consolidation history and mergers that limit competitors' access to products and services.

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Despite an overall trend toward margin recovery, health system mergers and acquisitions were slowly returning to pre-pandemic numbers, driven by financial distress. An example of this trend is the proposed merger between Jefferson Health and Lehigh Valley Health Network, which aimed to create a 30-hospital network with a reported $14 billion in revenue.

Addressing Modern Market Realities

The FTC and DOJ accounted for modern market realities in their new merger guidelines, including vertical and horizontal integration, platform competition, and conditions of employment. The lowered threshold to a market index of at least 1,800 or an increase of at least 100 in a highly concentrated market expanded the scope of FTC's regulatory review. These changes could particularly impact health system mergers and acquisitions driven by financial distress.

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The success of these deals hinges on whether and how both parties can truly unlock performance gains. However, the business mergers' consequences are not without implications for the cost of care. Health insurance premiums have risen in some areas, possibly due to industry consolidations.

Future of Healthcare: Technology and Integrated Platforms

In addition to mergers and integrations, the future of healthcare also saw the rise of technology-enabled services. For example, Custom Health Inc and Berenson Acquisition Corp I entered into a business combination agreement to redefine the healthcare landscape. Custom Health focuses on serving poly-med patients with chronic conditions, representing an estimated market of 78 million adults in North America. The transaction, expected to close in the second quarter of 2024, implies a $185 million pre-money equity value for Custom Health and is expected to provide the Company with access to cash remaining in BACA's trust account post redemptions and potentially additional contemplated financing.

Furthermore, the future landscape of healthcare also saw the increasing use of AI-driven strategic timely discharge programs in hospitals to maximize bed capacity and reduce the average length of stay. There is also a growing trend of consumerism in healthcare, the use of new technologies to improve patient care and reduce costs, and a shift towards integrated healthcare management platforms. These developments are expected to rise in the cost of employee healthcare coverage for 2024, indicating a significant shift in the business and financial perspective of healthcare.

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