Many small businesses are struggling to thrive in times of chaos and this pandemic has launched Merger & Acquisition (M&A) through many sectors, one of which is healthcare. Small businesses may initially attempt to preserve their independence sometimes, but they ultimately see that maybe the best thing for their patients is to become part of a larger whole.
Over the last decade, providers have been consolidating as businesses embrace economies of scale and vertically and horizontally grow. Post-Covid-19, larger healthcare groups, and investors are expected to increase their acquisitions of smaller hospitals, physicians’ practices, and alternative care locations.
A recent industry insider study by Bain & Company said that strained finances and a sharp drop in volumes of procedures have forced organizations hard hit by the pandemic to entertain acquisition offers.
The key highlights of the report were:-
- 50% of hospital administrators said their institutions are highly likely to make one or more acquisitions in the next 2 years
- Almost 70% of physicians in independent practices were agreeable to the thought of acquisition
- Physicians advocated acquisition by organizations that offered financial security and yet provided autonomy for them
The results were consistent across surgical specialties (74%), primary care practitioners (69%), and other office-based procedures (67%). Surgeons and office-based doctors were both prepared to consider an acquisition.
According to Bain research, 30 percent of physicians who owned practices in 2019 reported that they will sell their practice in the next two years. Today, physicians support the acquisition of organizations that offer greater financial stability but also provide autonomy for physicians, namely by other physician practices.
Large healthcare organizations, including hospital associations, expect further acquisitions and mergers to be made. 50% of hospital managers said that their institutions are very likely to make one or more acquisitions to achieve greater growth in the next two years. Alternative treatment locations, including ambulatory surgery centers, emergency care facilities, and pharmacy in-store clinics, were on the priority list of administrators considering M&A.
Independent physician practices were the next most common target, followed by standalone hospitals. Home health companies that offer medical services in the home have continued to gain market share over the last few years, fuelled by lower prices and patient comfort, and investors have taken advantage of this development.
They are expected to invest in digital technologies as healthcare providers consolidate. As digital natives such as Amazon and Google join the fray, the move is increasingly relevant. Leading providers are developing digital capabilities that improve care delivery and reinforce patient engagement, such as applications to connect directly with patients.
Consolidation is expected to pick up in MedTech, too. Medtech companies with category leadership roles will be in the best place to succeed in the subsequent flight to quality as provider networks merge suppliers. Despite the slowdown, well-capitalized, larger MedTech firms will be able to invest to gain market share through organic and inorganic growth as demand returns.
What does this mean for health systems that are considering M&A?
To reinvent themselves, innovate care delivery, and thrive in the future, health systems should understand how they can utilize the instruments of M&A-acquisitions, mergers, integration, and divestments. To position their company for the future, executives should take the following approach:
- Determine an optimal asset portfolio: The portfolio should fit with the long-term plan and patterns of the company. This will mean that organizations will need a wider portfolio of non-inpatient care services-the best combination of clinics, ambulatory, virtual health, and other care delivery environments that will ensure their community’s equity, prevention, and well-being.
- Develop a buy, build, partner analysis to fill in gaps: In their current asset portfolio, companies can recognize holes and develop a strategy to build, acquire, or combine. This will allow creative ways to gain new skills or enter new markets or geographies. Partnerships with technology providers, disruptors, and those in the community will all help create new models and capabilities for the delivery of treatment or non-healthcare services that a company could not have achieved alone. Divestitures can be an essential instrument, too.
- Maximize and integrate the organization’s current assets: Current assets in technology, community, branding, leadership, and clinical delivery should be in alignment. To ensure alignment, legacy acquisitions or newly constructed properties should be reassessed. Divestitures, shuttering, and repurposing properties can also be considered
With rapid consolidation anticipated in almost every industry and to manage one’s destiny, health systems should immediately begin strategic planning to position themselves for potential success.
The pandemic may have had an unforeseen effect. However, progress is expected to be a constant in the health care industry even as we set out on the road to recovery. The delivery of treatment is shifting. Business models at hospitals are evolving. The theory of scale is shifting. Leaders should be prudent on how they get there.