As providers set powerful goals for the future, they are seeking strategic partners who can fill critical competencies.
Value-based care, population health management, clinical integration, and changing physician payments are just a few key reasons why providers are entering into mergers, acquisitions, and partnerships today. Each of these areas involves capital-intensive goals, which are motivating providers to partner with organizations who can shore up specific weaknesses. “Providers are seeking partners with the right combination of capital, infrastructure, intellectual property, and technology,” says Brent McDonald, head of healthcare strategic advisory, managing director at Bank of America Merrill Lynch. “We are seeing mergers that have clear built-in synergies. Oftentimes, the two organizations don’t just mirror, but rather they complement each other in strategic ways. When they merge, it becomes one plus one equals three.” For example, one hospital may have spent more time developing an urgent care network, a freestanding emergency room, or a micro-hospital network, while the other recruited and invested in developing a network of high-acuity specialists. “Partnering with an organization that has built scalable competencies makes it easier to justify the execution risk of integrating,” adds McDonald.
Key financial benefits
McDonald says decreased overhead is still the most straightforward, nonclinical, financial economy of scale that occurs through provider partnerships. Organizations that enter into a merger or acquisition can expect to gain efficiencies in accounting, human resources, revenue cycle, and supply chain. These deals also allow providers to spread major investments in health information technology and population health over a broader set of hospitals and a larger net revenue base, says McDonald. The two parties also may benefit from clinical core competencies, including complementary service lines and geographic ambulatory access points.
Achieving population health goals through a strategic partnership
When it comes to meeting clinical objectives, quality and population health are top of mind when providers enter into a deal today, says McDonald. In fact, they are looking for specific clinical competencies in a potential partner, including strong case management and physician alignment. They also want a partner with an optimized electronic medical record (EMR) solution. “Simply having an electronic medical record isn’t enough anymore,” says McDonald. “An organization that has mature physician integration, and is advanced in how it uses its EMR system to impact care, likely has physician leaders who have worked through the data sets to create best practices and has clinical care decision matrices embedded in the medical record, which enables greater standardized care.”
Infrastructure and technology make up the backbone of population health. They allow a hospital to measure clinical information and present cohesive and timely data to its clinicians. Both of these competencies require heavy capital investment and know-how, typically found in larger organizations, says McDonald. Community hospitals, however, are challenged when investing in population health because they simply don’t have enough margin. For example, if a community hospital is trying to create a center of excellence in a clinical service line, it may have trouble recruiting key specialists and subspecialists, notes McDonald. This is where merging or partnering makes sense. “A larger partner will have the technology, case management, and a better pipeline of physicians. Our Bank of America Merrill Lynch analysis reflects that there is a correlation between scale (or size) of an organization and higher investment-grade credit ratings.”
Accelerating the shift to MACRA
Finally, a partnership can help physicians meet MACRA requirements, which require transitioning from a fee-for-service to a value-based payment model, says McDonald. A traditional independent physician practice that has to rely on a high volume of patients just to keep the office open does not have a lot of excess capacity to deal with changing payment and care models. “It is an almost impossible task for independent physicians to influence the health of their patients when they leave their office and go to the hospital or to an urgent care center. It requires competencies they don’t have to compete in this advanced care and payment system, including an optimized EMR and the ability to undergo a care redesign,” says McDonald. Therefore, it is difficult to manage downside risk. In a merger or alignment with a larger, capable organization, physicians become part of an entity that has a sophisticated EMR, case managers, and other staff who are available specifically to follow and enhance that patient’s journey across care environments.
To learn more about the benefits of integration and how providers are structuring today's complex M&As, read the full report here.
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