Loyale Healthcare, a Leading Healthcare Financial Technology Company, Examines Mergers and Acquisitions in Healthcare - Don’t Forget About the Patient
LAFAYETTE, Calif. (PRWEB) October 09, 2018 -- Merger and acquisition activity in the healthcare industry was up 13 percent in 2017 compared to the previous year, an all-time high in the industry. 2018 looks like another record year with the sector reporting $156 billion in first-quarter deals alone, according to Bloomberg.
Traditionally, mergers and acquisitions have been limited to hospital consolidation driven by costs and empty beds. But another trend has developed. This recent wave of consolidation is characterized by a more strategic, consumer-focused perspective. This merger strategy recognizes the probability that patient choice will be a determining factor for success in the future of healthcare providers.
The traditional healthcare merger between hospitals and health systems is referred to as a horizontal merger. Many consumer-driven mergers are referred to as vertical mergers, because they include participants from a variety of industry sectors, including pharma, insurance companies, investors, tech companies and others.
Both horizontal and vertical mergers are severely challenged by one fundamental obstacle - the propensity to lose patient revenue and loyalty as the merger distracts operational and financial staff, creating an opening for competitors to steal patients.
The question is… will either of these mergers improve services to the patient and will they be financially successful?
Horizontal Mergers – Hospital to Patient Services
A horizontal merger is usually the acquisition of a competitor who is in the same line of business. By acquiring the competitor, the acquiring company is reducing the competition in the marketplace, reducing duplicative operating costs or filling empty beds. Most of the largest hospital companies in the United States have grown primarily through horizontal acquisitions of smaller hospital systems.
Healthcare organizations recently announced several major deals set to close in 2018, such as the proposed mergers of Beth Israel Deaconess Medical Center and Lahey Health, Advocate and Aurora Health Care, and Dignity Health and Catholic Health Initiatives.
These mergers could result in improved consumer competitiveness by standardizing cultural and operating best practices across a wider operating footprint. By doing so, the best of patient experiences could be replicated across the new, combined enterprise. And because these mergers are usually designed to improve efficiencies, these enhanced patient services could be delivered in a more financially sustainable way.
Vertical Mergers – Comprehensive Patient Services
A vertical merger is usually between a manufacturer and a supplier. It is a merger between two companies that produce different products or services along the supply chain toward the production of some final product. Vertical mergers usually happen in order to:
1. Increase efficiency along the supply chain,
2. Increase profits for the acquiring company,
3. Gain dominance in an industry by providing one-stop shopping services or
4. Introduce “packaged” services to the buyer.
Noteworthy vertical mergers include Cigna Corp. who has agreed to acquire drug benefits manager Express Scripts Holding Co. in a deal valued at $67 billion. That follows an offer by CVS Health Corp., a company created by the merger of a drugstore chain with a pharmacy benefit manager to buy insurer Aetna Inc.
Consumer advocates and the federal government often oppose such mergers because they are concerned that the amalgamation of power and resources in related but not directly competitive markets could be detrimental to consumers. Vertical mergers along the lines of AT&T–Time Warner, Amazon–Whole Foods, or CVS–Aetna could create higher barriers to entry, reduce potential entry, and discourage smaller rivals from competing with the vast resources of entrenched firms.
Nevertheless, in the current less rigid regulatory environment, mergers that promise the potential for improved consumer prices and/or experiences seem to fare well. The ultimate success of any such merger will of course be determined by the consumer. The merger of Amazon and Whole Foods was supposed to result in lower prices for Whole Foods’ shoppers, but over a year into the deal the jury is still out whether the high - end retailer has succeeded in shedding its “whole paycheck” reputation.
Avoiding Common Merger Mistakes
Whether mergers of either kind will be successful is often a function of focus and follow through. There are many vertical mergers that have not been successful, the classic failure being the AOL-Time Warner merger. The track record for horizontal mergers is equally spotty. With more than 50% of merger and acquisition deals failing, it is imperative to have a meticulously well thought out plan, backup plan and exit strategy.
Mergers and acquisitions that fail tend to have a number of common traits:
1. Cultural Disparity - The companies are too culturally dissimilar and cannot be easily acculturated – the fit was not as perfect as the companies thought.
2. Valuation and the practical proposition of future benefits -The numbers looked good on paper but prove to be unattainable in the real world.
3. The execution of the integration process: A major challenge is the post-merger integration. A deal is not over when the papers are signed. Post-merger integration is a three-year process at a minimum.
4. Operational integration issues – Centralization versus decentralization, autocratic leadership or leader-servant model? What is the new entity called? Where will the headquarters be?
5. Leadership capacity versus bandwidth – Do the critical stakeholders have the time, commitment and money needed for unknown challenges as they are identified?
6. Actual cost of the merger exceeds the potential for recovery – Few mergers have actually achieved the projected cost reductions as quickly as projected.
7. External factors – What if the economy fails or enters a recession shortly after the merger is consummated. Have you considered the downside risks? Do the combined companies succeed in delivering consumers a more affordable and/or attractive choice when compared to competitors?
Will Your Planned Merger Succeed with Consumers?
Large and mid-size healthcare organizations are not immune from merger failures and they should implement more proactive strategies to avoid common acquisition mistakes, such as undefined growth strategies and deal overpayments. In the increasingly consumer-driven healthcare market, any successful merger strategy must consider the impact on patients.
Parties considering a vertical or horizontal integration should consider four key questions:
1. Have you created a robust plan for revenue retention and growth among all patient populations?
2. Does combining your organizations allow you to improve or enhance patient experiences and excel at patient financial engagement, a key consideration for patient retention, growth and revenue generation?
3. Do the combined organizations specifically address the integration and enhancement of all entities’ business strategies, operations, technologies and track performance on an enterprise scorecard?
4. Do the combining organizations have an adaptive technology platform that will greatly accelerate the above? Such a platform would:
- Rapidly enable utilization of best of breed point solutions and systematic retirement of redundant or obsolete systems such as Eligibility, Patient ID, Charity Care Analytics, Medical Necessity, Estimation engines, 3rd party lending programs and others.
- Integrate the Network and all Providers to provide consolidated electronic billing presentation, financial options and collections.
- Implement one high performance patient engagement business model for all entities that can be adjusted to the care setting, geography, patient demographics, and other variances.
- At the hospital level - facilitate full-scope episode of care integration for all emergency services, inpatient, outpatient, physician, specialist, etc., thereby delivering a seamless financial experience so the patient sees you as a single entity financially.
- Immediately improve the patient’s financial experience for all entities above the pre-existing stand-alone levels
- Improve the digital portal/mobile channel experience to encourage patient digital engagement and self-service so demands on health system staff are reduced at the same time patient satisfaction is improved.
Will vertical, consumer-driven integration be successful in healthcare when it has failed in so many other industries? We believe that mergers of any kind, which are carefully planned from the consumer’s perspective, hold the potential to radically improve America’s unsustainable care delivery and payment model. What remains to seen is who will survive the ensuing competitive fallout.
Kevin Fleming is the CEO of Loyale Healthcare, LLC
About Loyale
Loyale Patient Financial Manager™ is a comprehensive patient financial engagement technology platform leveraging a suite of configurable solution components including predictive analytics, intelligent workflows, multiple patient financing vehicles, communications, payments, portals and other key capabilities.
Loyale Healthcare is committed to a mission of turning patient responsibility into lasting loyalty for its healthcare provider customers. Based in Lafayette, California, Loyale and its leadership team bring 27 years of expertise delivering leading financial engagement solutions for complex business environments. Loyale currently serves approximately 2,000 healthcare providers across 48 states. Loyale recently announced an Enterprise level strategic partnership with Parallon including deployment of its industry leading technology to all HCA hospitals and Physician Groups nationwide.
Michael Morrison, Loyale Healthcare, LLC, http://www.loyale.us/, +1 (406) 868-9179, [email protected]
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