The 2018 HFMA Region 5 Dixie Institute provided blue skies and perfect conditions for the conference participants to enjoy Florida’s 80-degree winter weather. Though the water was calm for the evening boat cruise, inside the conference halls and meetings the discussions of this year’s theme, “Navigating the Seas of Healthcare Change,” were very much focused on the quickly changing industry landscape and the requirement that organizations have the highest degree of attention to the current trends and requirements to thrive in the future.
ECG was excited to be a conference sponsor and speak on the hot topic of mergers and acquisitions (M&A). Below are four themes that emerged and stuck with us from many of the keynotes, breakout sessions, and conversations.
1. M&A Rule the Day
Whether the topic was CVS–Aetna, Berkshire Hathaway–JPMorgan Chase–Amazon, or other regional partnerships that have been in the news, health systems, insurers, vendors, physician practices—practically all the players in the healthcare space—are thinking about M&A. Even if an organization is not actively pursuing (or being pursued by) new partnerships, everyone is feeling the impact of M&A activity. Though some organizations approach M&A to strengthen their lines of service, expand geographic presence, and gain economies of scale, M&A have often been seen as an end point rather than an opportunity to gain true value from the activity. Strategic enterprise-wide transformation, whether initiated because of a merger or to determine whether a merger or acquisition is in the organization’s best interest, should be viewed as part and parcel of any M&A activity. All too often, organizations see M&A activity add to corporate-level functions and complexity instead of achieving increased value for both organizations and ultimately, in healthcare, for the patients and populations those organizations serve.
2. It’s All About Costs
With baby boomers now signing up for Medicare in droves, the impact on health systems’ financials is highlighted as never before. The healthcare industry has known about its cost problem for years but has been able to protect itself by focusing on increasing revenues through provider contracting and growing programs. Those tactics are still important, but the payor mix shift that has already begun and will continue for many years makes it that much harder to increase revenue on a per case basis. The industry must now turn its attention to controlling costs. Achieving scale, which is driving the M&A trends, is a way to address cost structure, but just as much, if not more, cost reduction opportunity lies within the walls of each health system. Those organizations that can advance their care models to affect significant per case cost reductions will rise to the top. Only the future will reveal those winners, but it is safe to say that the organizations that are nimble and willing to be innovative will be the leaders.
3. ROIs Are Getting Muddy
Innovation creates opportunities to make leaps versus incremental ideas that may improve results but not drive any real change. Truly innovative concepts involve risk, since the exact path to implementation is often unclear. Part of that may be due to lacking a known (and sufficient) revenue source to support the idea, a clear picture of the real investments that will be required to bring the idea to life, or experience of what the outcome will look like. As health systems see opportunities to embrace change that is outside their typical comfort zone—that is, supported with detailed, data-driven scenario planning and a calculated return on investment (ROI)—innovation many times throws them a curve ball. Just because an ROI cannot be modeled in a traditional manner does not mean ideas and innovative approaches to care should be sidelined. If anything, the opposite is now required. Embracing a new level of risk taking is what will allow healthcare change to make bigger leaps.
4. Know Your Core Business
Building on the themes above—health systems have gotten bigger and will continue to do so with the fast pace of M&A activity, reducing costs is now paramount to long-term success and even survival, and innovation may provide a path that is paved in real time and muddy the ability to forecast short-term results—health systems must continuously reflect on what their core business is and welcome opportunities to partner with organizations whose core businesses are complementary. Additionally, aligning core clinical services with the population health needs of the core markets served is fundamental to future success. The make-versus-buy discussion is surfacing more and more as health systems realize that shedding certain portions of their businesses and partnering (buy) may be a better answer than internally developing and owning the multitude of clinical services and many parts of the care model that require different skillsets, investments, and business structures.
Let us know what themes you thought were most important!