Changes in healthcare provider merger and acquisition activities are bring new business opportunities while lowering risks to hospitals and delivery systems, consultancy Accenture concludes in a new report. A growing number of buys involve information technologies.
Rather than buying more hospitals, these organizations increasingly are eyeing physician practices and technology companies. The change comes during a period when healthcare provider M&A deals totaled a record $241 billion just in the first five months of 2015.
Decreasing are the “horizontal” M&A deals of hospitals buying hospitals to get a bigger geographical footprint. Accenture contends these buys “have generally failed to generate the desired synergies, and some have actually resulted in diminished operating performance of the combined entities.” The reason? These deals are closed quickly without adequate near-and-long-term planning, which can leave at least 10 percent of expected savings on the table.
For instance, expected savings may not be realized because while a goal of merging organizations was to standardize information technology systems, for a variety of reasons that could not be done and existing disparate core systems had to remain, explains Kaveh Safavi, managing director of Accenture’s global healthcare business. Or, the level of expected reductions in duplication between the organizations turned out not to be feasible.
Acquisitions rapidly increasing are “vertical” M&A deals where a hospital or health system buys an insurer, retail clinic or physician practice to better adjust to new payment models and consumer expectations, Accenture says.
And then, there are “digital” M&A acquisitions being made to give hospitals and delivery systems access to products supporting telemedicine, population health management, analytics, remote monitoring, wearables and other services—as well as investment opportunities. Accenture gives as an example hospital chain HCA’s 2014 buy of vendor PatientKeeper, which sells a suite of ancillary physician software supporting patient portals, charge capture, CPOE, e-prescribing, medication reconciliation and mobile access to patient records, among others.
Another example of digital M&A is the buying of telemedicine or tele-staffing services, where a hospital or delivery system typically buys a small local company to serve itself, and maybe also to sell such services to other providers, Safavi says.
Accenture warns, however, that digital deals can change and disrupt an organization’s business model. While essential in the long-term, these acquisitions can be daunting to be successful at. That said, the consultancy gives two core reasons to pursue vertical and digital acquisitions:
* Diversification: “Providers can mitigate business risk by creating a broader investment portfolio that brings in revenue that is not necessarily tied to traditional hospital-related reimbursement limits.”
* Differentiation: “Providers can establish new categories of services to increase their competitive advantage.”
Accenture expects buys of non-acute providers will comprise 84 percent of total provider acquisition volume by 2018 while digital health deals will increase from 1 percent in 2014 to 8 percent by 2018. Hospital-buying-hospital deals will decline from 21 percent in 2014 to 6 percent by 2018.
An Accenture consultant was not available to offer additional insights. The full report, which includes five steps to becoming effective managers of a diverse healthcare portfolio, is available here.
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