Outpatient sector seeing success in mergers and acquisitions

Healthcare spending and demographic shifts are leading to financial success in the outpatient sector, particularly in mergers and acquisitions, according to a new report from Colliers.

Spending on healthcare continues to rise, with spending rising 7.5% in 2023 to $4.9 trillion, or $14,570 per capita. That’s the highest annual growth rate since 2003, except for the spike in 2020 during the COVID-19 pandemic. It was also the first time since 2020 that healthcare spending outpaced growth in GDP.

The two largest categories for spending, hospital services and physician services, had an average annual growth rate of 5.3% from 2014 to 2023.

WHAT’S THE IMPACT

Spending growth led to increased profitability as health systems benefited from higher utilization rates, the report found. National systems generated sizable profits by selling facilities in non-core regions to focus on more profitable markets and services.

Another factor having an outsized impact on the industry is the Baby Boomer generation. In 2024, people older than 65 accounted for 18.1% of the population, but by 2033 this age group will account for 21%. This includes an increasing number of people aged 75 to 84, who represented 31.5% of the 65-plus population in 2024 but are expected to jump to account for 35.9% of this demographic by 2033. By then, the percentage of the total U.S. population over the age of 75 will have grown from 7.1% in 2024 to 10.3% in 2033.

Since most older adults have at least one chronic condition – and since the likelihood of chronic conditions increases with age – health systems are exploring ways to bridge the gaps, including through mergers and acquisitions, establishing new outpatient facilities, or partnering with existing local providers.

Due to the aging population in the inpatient setting, Colliers expects an increase in expensive and complex inpatient care. Inpatient volume is projected to rise by 1% between 2023 and 2028 and by 6% from 2023 to 2033, with those over 65 expected to drive a significant portion of this growth.

Growth projections for inpatient care are higher for physician specialties serving patients with more complex medical histories and conditions, such as neurology and cardiology. So while inpatient care will generate significant revenue, health systems will likely seek growth opportunities beyond the hospital setting, shifting some high-revenue procedures – such as joint replacements and spinal fusion – to outpatient facilities as soon as the technology is available.

Outpatient facilities are also viewed as a means to access new geographic areas or offer additional services. Specific service lines will have greater growth opportunities in the outpatient sector, analysts said.

THE LARGER TREND

As outpatient procedure growth occurs, analysts project an ongoing shortage of healthcare workers, including physicians, nurses and administrative staff. This shortage will become more pressing as demand increases due to the aging population, said Colliers.

Leveraging staff in different facilities allows for more flexibility, analysts said, while outpatient facilities can have the advantage of being closer to patient populations. Patients who find these outpatient locations much more convenient are likely to use them frequently after positive experiences, authors said.