In a recent interview with Fox Business Network, Cleveland Clinic CEO Toby Cosgrove, MD, shared why health care will see more consolidation in the next few years. The number of mergers and acquisitions (M&A) will increase, according to Dr. Cosgrove, as the industry grapples with pressures to be more efficient. He sees consolidation as a way for hospitals to gain more purchasing power, reduce redundant services and drive costs down.
“There's no question that if the insurance industry consolidates, we are going to have to consolidate as providers who negotiate with them,” Dr. Cosgrove explained.
Many experts agree with Dr. Cosgrove’s prognosis. Deloitte, for instance, is predicting that only 50 percent of hospitals today will remain in 10 years. Government regulations and changing patient expectations are major drivers of this trend in the medical marketplace. The Affordable Care Act in the U.S., for instance, has forced the industry to move beyond the traditional fee-for-service model to an “outcome-focused, value-based care,” according to Deloitte.
Indeed, consolidation is already well under way. Between 2009 and 2013, annual hospital deals have increased 14 percent. More notably, deals are also getting larger. In 2013, the average M&A deal was valued at $224 million—a significant jump from 2007’s $42 million.
Business leaders in health care organizations can’t afford to take the M&A trend lightly. While consolidation offers potential benefits, it also brings considerable risks. If you’re an executive working in health care, here are a few things to consider as you evaluate opportunities to merge, acquire or partner with other companies in the industry.
1. Prioritize the patient experience.
Increasing the quality of care while reducing costs is a typical motivation for consolidation. When Texas-based CHRISTUS Health, for instance, announced its acquisition of Good Shepherd Health System, the organization’s president and CEO underlined the potential “to improve the health of the communities it serves.”
The reality, however, is that mergers don’t necessarily improve patient care or lower costs for consumers. In fact, a 2016 study suggests that as more health systems consolidate, patient experience worsens. The report, conducted by consulting firms Prophet and GM Healthcare Camden Group, found that between 2013 and 2014, M&As increased by 14 percent, while patient satisfaction across the industry declined three percent.
The reality is that mergers don’t necessarily improve patient care or lower costs for consumers.
It should go without saying that executives need to ensure that mergers don’t negatively impact the patient experience. Today’s health care consumers are more empowered than ever before—and they expect a seamless experience. Engage with your patients throughout the process to benchmark satisfaction metrics and get a better understanding of its impact to wait times, consumer perception and other factors of patient care.
2. Engage your physicians and other employees.
The role of employees in delivering quality care can’t be overstated. Health systems provide services that are personal in nature, and employees—especially physicians, nurses and others on the front lines—play a key role in delivering the best service possible. When health systems merge, however, there’s a high risk of culture mismatch, putting undue stress on your employees.
“Myriad factors can lead to [merger and acquisition] failure,” says Gallup’s Brooke Fernandez and Andrew Giger, “but cultural mismatch is one of the most frequently cited reasons.” To foster cultural integration and a smoother transition, leaders must communicate and engage frequently with managers and employees.
Unfortunately, compared to other industries, health care lags in employee engagement. A 2016 study from Quantum Workplace reveals that the health care industry is dead last among 17 industries when it comes to keeping employees engaged.
Compared to other industries, health care lags in employee engagement.
The solution, according to Greg Harris, president and CEO of Quantum Workplace is to “ask employees what they think the company needs to improve upon in order to provide the best care for patients or customers.” More importantly, prove to your employees that you’re listening and use their feedback as you make improvements to your services.
3. Learn from other industries.
Consolidation is not unique to health care. It’s happening in media and entertainment, tech, CPG and every other major industry. As health systems consolidate, it makes sense to see what companies in other industries have done and apply relevant lessons to your own company.
One example comes from the airline industry. In 2013, Avianca Airlines, the second largest airline in Latin America, became the unified commercial brand of two leading airlines, Avianca and TACA. To manage the merger and ensure that passengers continue to find value in the new brand, the company used an insight community to better understand the different touchpoints in the customer journey.
Using community feedback, the company made significant decisions on things like uniforms, in-flight food options and magazine branding. Avianca was able to get a better understanding of why passengers do what they do, giving the company actionable insight into how to deliver a better experience with its new, unified brand and meet revenue expectations.
Another example comes from consumer goods. When Procter & Gamble acquired Gillette in 2005, for instance, both companies focused on consumer needs, relying on each other’s strengths and expertise to deliver more innovative products to the market.
Innovation in industries like tech and retail will only increase consumer expectations in health care. Along with growing pressure to be more innovative and efficient, more health systems will consider consolidation, given its potential for economies of scale and synergy. But the strategy will only result in increased efficiency, reduced costs and higher revenue if health systems put the patient needs and wants first.
Henry Liu, business development associate, Vision Critical
Hugo Rajotte, business development associate, Vision Critical