And the driving forces behind it
Edited by Joaquim Cardoso MSc
The Health Strategy Blog
April 8, 2022
This is an excerpt of the article “2021 M&A in Review: A New Phase in Healthcare Partnerships”, published by By Anu Singh in JANUARY 10, 2022, focusing on the topic below.
Looking Forward: A New Phase in Healthcare Partnerships
Prior to the COVID-19 pandemic, the U.S. healthcare system had experienced two phases of partnerships:
Phase One, which peaked in the 1980s and 1990s, saw independent hospitals combine into healthcare systems in an effort to
- contain rapidly rising healthcare costs and
- to respond to the new demands of managed care.
Phase Two, which peaked in the 2010s (following passage of the Affordable Care Act), saw healthcare systems combine to attain or accelerate access to key resources
- to prepare for population health,
- tighter integration of healthcare services, and
- assumption of risk.
Even before the pandemic struck, new forces were laying the groundwork for a new phase of healthcare partnerships. Factors including
- the ongoing movement of care from inpatient to outpatient settings,
- technological change, and
- the push toward consumerism in healthcare created opportunities for legacy healthcare providers
- as well as new providers who could focus on a specialized segment of the market for healthcare services (e.g., primary care, behavioral health, ambulatory surgery, telehealth, home health, chronic care management, etc.) without bearing the high costs of providing acute inpatient services.
As the Affordable Care Act’s encouragement of integration of services across the care continuum took hold, new industry participants were bringing focus and optimization in singular service lines, which is now opening up avenues to optimize various service providers in a single coordinated model.
As the Affordable Care Act’s encouragement of integration of services across the care continuum took hold, new industry participants were bringing focus and optimization in singular service lines, which is now opening up avenues to optimize various service providers in a single coordinated model.
With more participants and alternative sites and settings now available, consumers, health plans, and employers face an ever-growing assortment of choices for where they can receive (or pay for) care.
Providers — both legacy and new — can differentiate themselves by being better, more affordable, or faster in the delivery of the services they choose to provide.
Accordingly, health systems will increasingly be asking the rhetorical question of “what is our core business?” as they develop and execute strategic plans and initiatives.
The COVID-19 pandemic has further altered the healthcare landscape.
Although hospitals and health systems had experienced financial disruptions — as recently as the Great Recession of 2008–09 — they had never in recent history experienced disruption of their core operations as they have over the past two years.
Disruptions in the supply chain and labor market have further pressured operating margins and may continue to do so over the long term.
Although hospitals and health systems had experienced financial disruptions — as recently as the Great Recession of 2008–09 — they had never in recent history experienced disruption of their core operations as they have over the past two years
Disruptions in the supply chain and labor market have further pressured operating margins and may continue to do so over the long term.
Societal impacts of the pandemic are producing heightened demand for high-touch specialty services in areas such as behavioral health and home health.
Societal impacts of the pandemic are producing heightened demand for high-touch specialty services in areas such as behavioral health and home health.
As healthcare organizations seek to stabilize their operations and move toward a new post-pandemic normal, their strategy will be influenced by three lessons of the pandemic:
- Realize the imperatives of scale
- Focus on core markets and services
- Seek partnerships that add new capabilities or meet consumer demand for new or enhanced services.
1.Realize the imperatives of scale.
Larger systems were better positioned to deploy resources, segregate facilities for infected and non-infected patients, and weather the operational and financial impacts of the pandemic that hit different facilities and markets at different times.
2.Focus on core markets and services.
Operational disruptions and financial pressures made non-core assets or assets in non-core markets less attractive, prompting divestiture or monetization of these assets.
3.Seek partnerships that add new capabilities or meet consumer demand for new or enhanced services.
As discussed in our Q3 2021 report, health systems are seeking partnerships that can offer consumers access to new services or enhance the delivery of services that require specialized skill sets.
These partnerships can enable health systems to focus on their core business and enhance or expand service offerings.
In many markets, hospitals and health systems are positioned to play a central role in navigating and managing a portfolio of offerings tailored to the needs and demands of their markets.
They have an established brand, broad physician relationships, care coordination infrastructures (including EHRs), and the ability to care for co-morbidities that more specialized partners are not equipped to handle.
We anticipate a greater willingness to engage with specialty providers to complement the traditional inpatient/outpatient services that have been the core offering of hospitals and health systems.
In many markets, hospitals and health systems are positioned to play a central role in navigating and managing a portfolio of offerings tailored to the needs and demands of their markets.
In the year ahead, we will continue to report on announced transactions between hospitals and health systems in our quarterly updates, and we will also look for opportunities to highlight transactions that illustrate this emerging new phase of healthcare partnerships.
Evaluating New Partnership Options
As hospitals and health systems consider new partnership models, key questions will include:
- What is our core business?
- For what services is there strong consumer need or demand?
- Are there potential partners who can provide these services better than we can?
- What do we offer to potential partners?
- What degree of control do we need or want in the partnership?
- What is the optimal structure for the partnership (e.g., ownership, branding, financial commitment, governance, clinical decision-making)?
Originally published at https://www.kaufmanhall.com
TAGS: Trends in Health Care; Future of Health Care; M&As; Vertical Integration; Partnerships
