Number-wise, hospital mergers and acquisitions in the U.S. dipped last year after reaching decade-high levels in 2012. But analysts don’t think the appetite for growth via M&A is dying down just yet. Regulatory changes and pressure from public and private insurers are driving new healthcare business models that aren’t going away.
Simon Gisby, the managing director and head of the healthcare practice at Deloitte’s Corporate Finance business, advises hospitals and health systems on M&A strategy and deal execution. “In the world of healthcare, M&A doesn’t necessarily mean a full acquisition,” he explained. “We use the term M&A, but the deals can range from affiliations to joint ventures to full mergers.”
He has noticed four dominant (but not mutually exclusive) strategies that clients are adopting to grow during this challenging time:
- Innovating – Some health systems are trying to provide more cutting-edge services to their patients in one or more specific specialties. “They’re taking a very specialized service that they have a particular reputation in and are looking to, on a regional or national basis, provide best-in-quality care to a community,” Gisby said. That might mean providing care in more settings or investing in new technologies in cancer, neurology or cardiac care, for example.
- Aggregating – Other health systems are turning to acquisition to leverage their infrastructure, driving corporate expenses over a broader base of businesses, Gisby said. This has been a very traditional model in the healthcare world, but is still continuing today. But Gisby said he’s also noticed clients looking to drive down their costs by outsourcing certain businesses, like supply chain management, billing and collections or physical maintenance. “They’re looking to outsource certain services only to an organization that manages them on a broad scale, because those companies have the infrastructure to be able to reduce costs,” he said.
- Diversifying – Yet others are searching for new ways to expand their services into new areas beyond in-patient care. That’s driven several, like North Shore-LIJ and Inova Health System, to venture into the health insurance business by setting up health plans. Others are diversifying into retail health clinics through joint ventures with chains, like the one launched by the Henry Ford Health System and MinuteClinic last year.
- Managing health – As noted earlier, these strategies are not mutually exclusive. Some health systems are combining more than one of them in an effort to be able to handle the majority of a specific population’s needs. These organizations are starting to think about strategies like telemedicine and bundled or fixed payments for certain services, Gisby said.
So which strategy will prevail? “I think we’re going to see more of everything,” he said.
If they aren’t already, all hospitals and health systems should be thinking about how M&A fits into their strategy or run the risk of being left behind, he said. “The outcome might be that, given your current market and given the services you provide to the community, you don’t need to actively engage for the time being. But it’s important to understand and determine that your strategy is to do nothing.”
[Image credit: Flickr user rutlo]
