The Moral Imperative Behind Health Care M&A
By Michelle Blackmer
To deliver transparency, reduced cost structures, and improved health, health care organizations leverage consolidation as a critical growth tool. KaufmanHall reports that in 2018 there were 90 health care–related mergers and acquisitions (M&A). While this is down from a pure transaction perspective (there were 115 in 2017), these mergers grew in size as part of a trend toward “megamergers” where the big get bigger. Deloitte estimates that only 50% of current health systems will remain 10 years from now and advocates that staying the course is no longer an option.
Demands for innovation, transparency, and regulatory compliance in health care are high. Inorganic growth helps strengthen long-term viability. It allows health care organizations to expand their service offerings, reach across geographies, comply with regulatory requirements, take advantage of more beneficial payment contracts, and access necessary infrastructure.
Spinning the Flywheel
In an industry struggling to control costs and demonstrate value for effort, the appeal of celebrating any financial progress such as that achieved in the early phases of M&A is tempting but distracting. The momentum created by financial progress has to (and, at the very least, should) be married with a disciplined customer obsession that leads to innovative care and experience.
In committing to customer obsession, organizations can achieve the flywheel effect, a concept developed in the book Good to Great by Jim Collins that states that no matter how dramatic the end result, good-to-great transformations never happen in one fell swoop.
Done well, consolidation affords health care organizations the opportunity to improve health—their financial health and that of consumers. With this type of consolidation come economies of scale. The opportunity—and the moral imperative—that health systems have, more than any other industry, is to go beyond economies of scale. Reducing staff and selling real estate appears as cost “efficiency”—but these cost-reduction measures more so feed the flywheel. These measures alone will not lower cost structures, reduce pricing, or deliver on the moral imperative to improve health.
Taking this flywheel concept that companies such as Amazon have mastered and applying it to health care helps explain why so many health systems are reporting increased revenue and decreased profits. The health care flywheel isn’t spinning. To get it working, providers must keep pushing and institute actions that stem from a disciplined customer obsession.
Acquiring organizations expand services, but, when the customer experience is subpar, patients will not make the choice to come back. Customer obsession isn’t reflected in an inaccurate understanding of a patient’s history by clinicians, in a patient having to wait to be connected to another office for scheduling, or in having a telehealth appointment that is disconnected from the rest of their medical record.
As health care organizations commit to leading from a place of customer obsession, they’ll improve the experience, and, as a result, they’ll attract more customers. With more customers will come the ability to expand services and to be more selective in the types of expansion and quality of innovation. Health care organizations will also be able to invest in efficiencies that reduce the cost structure and lower prices, again improving the experience. And this circular momentum will be the breakthrough in which customer obsession results in more growth and sustainability.
There is no single event or moment that will set the flywheel in motion. In this competition for patients who are active consumers of health care, the most likely path to moving from the top-of-mind physical or financial growth to delivering on the moral imperative—to improve health—is through more focus on customer obsession.
— Michelle Blackmer is the vice president of marketing for Verato and has extensive experience in health care enterprise IT solutions.