The Executive’s Guide to Healthcare M&A: Part I

It’s very likely that sometime soon, your organization – whether you’re a payer, provider or supplier to the healthcare industry – will be involved in some form of acquisition, merger, collaboration or integration.

We work with healthcare organizations every day to devise transition and growth strategies in a rapidly evolving and disruptive environment. Industry structural devolution and the transition to value based reimbursement combine to threaten the status quo. This of course offers both challenges and opportunities.

Operational and financial alignment with external partners offers an increasingly viable approach to support and accelerate enterprise performance and growth.

But this process is complex and fraught with risk as well. The wrong alignment with the wrong partner for the wrong reasons can severely damage an organization.

In this first of a four part series I’ll explain why your involvement in some form of acquisition, merger, collaboration or integration is inevitable. In future posts I’ll share best practices we’ve discovered on:

  • How to ensure your healthcare M&A strategy delivers ROI.
  • How to identify the right partners.
  • How to actually construct and execute an acquisition and merger/collaboration program.

Let’s get to it. Here are 2 reasons why healthcare M&A is inevitable:

1. The Push and Pull of Devolution and Value Based Reimbursement

The combined impacts of healthcare industry structural devolution and the transition to value based reimbursement on enterprise growth and operational performance are to disrupt the healthcare industry status quo.

Structural devolution is occurring along three dimensions:

  • Devolution of healthcare providers results in clinical patient care increasingly provided by non-physicians, including home health aides and family caregivers, and in some instances patients themselves.
  • Devolution of healthcare setting means this care is increasingly provided across a spectrum of facilities outside the hospital.
  • And devolution of healthcare technology brings clinical and information technology capabilities closer to the patient wherever they are.

This creates natural market pressures for the continued dispersion of individual healthcare enterprises. The number of hospitals, clinics, surgical nursing facilities, diagnostic centers, medical testing laboratories, population and occupational health companies, etc. has been steady or increasing in recent years.

U.S. demographic and innovative technology trends suggest further increases in the overall supply of and demand for healthcare provider and related services and solutions options.

Countering this “dispersion pressure” however, is the imperative to integrate and coordinate patient care while optimizing operational efficiency. Efficiency through scale and interoperability across the care continuum is required for providers and payers to manage cost and outcomes and operate effectively in a performance (value) based environment.

The combined effect creates pressure for disparate entities to combine forces in various ways including acquisitions, mergers, partnerships and other collaborations.

2. Capability Gaps and Potential Market Adjacencies

When we work with a client to create a growth and marketing strategy, the primary focus is to create alignment between what our client offers the market and what the market wants to buy. This alignment must occur along multiple dimensions to be successful, including capabilities, sales approach, price, packaging, delivery capacity, etc.

Core to our alignment methodology is a capabilities assessment in relation to market opportunity potential. In the process of defining this alignment we almost always discover capability “gaps” and potential market “adjacencies”.


Gaps are capabilities such as services, features, market segment reach, etc. that potential prospects expect to be included when buying the type of product or service being offered. The offering is less  likely to be successful if these missing capabilities are not ultimately included.

Market Adjacencies

Market Adjacencies are additional or supplemental capabilities or services with significant market potential, but are not currently part of the service or product being offered. They are often discovered through competitive analysis indicating that competitors are having success with these additional capabilities.

These capability gaps and market adjacencies are big drivers in the identification of M&A or collaboration opportunities.

The need for accountable integrated care management combined with financial performance through efficiency and growth will drive every provider of healthcare related services – including health plans – to at least actively consider various organizational combinations.

Stay tuned for the next article: 6 Ways to Determine if Healthcare M&A is Right for You

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