Patients Are Fueling Healthcare Industry Consolidation and Change, Just Not for the Expected Reason
The healthcare industry is on the brink of change. There are numerous forces including providers and patients pushing this transformation to the surface. Few providers have the necessary funds and resources to navigate this industry transformation on their own.
Many Americans lack sufficient knowledge to successfully manage their own health, a dire reality that undermines the wellness of our population and fuels avoidable healthcare costs in our nation. That’s the bad news.
Here’s the good: The healthcare industry is responding to this critical problem by developing and adopting models that are more patient centered, a system that emphasizes patient understanding, engagement, and outcomes rather than merely collecting fees for service. Companies are rapidly consolidating through mergers and acquisitions with the objective of delivering more wraparound offerings that are easier to access for patients.
“The enormity and gravity of this challenge cannot be overstated. By one estimate, roughly 90 percent of American adults may not possess adequate health literacy to take care of themselves,” said Christopher Helmrath, Managing Director of SC&H Capital. “This has many serious consequences. For example, those who lack health literacy routinely fail to take advantage of preventative measures, and they tend to rely on higher-cost offerings, such as hospitals, when preventable issues grow serious. This is detrimental for all involved — patients, care providers, and payers.”
“Essentially, the longer a patient goes without being proactively and consistently attentive to their health, the more likely they are to become ill, and the greater the financial costs to treat their illness,” Kevin O’Sullivan, Principal of SC&H Capital, said.
Under the emerging models of value-based healthcare, hospitals and physicians are compensated based on a patient’s outcomes, bringing their interests into better alignment. For instance, both parties benefit when patients partake in preventative medications. Also, outcomes improve when care providers ensure that patients fully understand their health and follow through with the prescribed steps to improve their well being.
A similar principle is behind much of the M&A activity in the healthcare sector.
“The companies that can create solutions that lead to significant patient adoption — display proven cost reductions or quality improvements — will be targets in the M&A environment,” O’Sullivan said. “There’s a fundamental appetite for technologies or approaches that increase engagement of patients in their own health and wellbeing.”
Recent M&A announcements include those by CVS, the drugstore chain, and the insurance company Aetna; managed care company Humana and healthcare services company Tenet Healthcare; United Healthcare, the insurer, and DaVito, large physicians group.
“Healthcare is on the threshold of wholesale transformation — and M&A is the principal means of affecting this transformation. A convergence of factors, especially the mounting economic imperatives to reshape the delivery of care, is driving the transformation. Opinions vary about what the transformed industry will look like, but those of us who are highly active in the space have little doubt it will look very different,” Helmrath said.
SC&H’s new report, “Capital Insights: Patient Engagement,” delves into a variety of issues, from the sweeping changes underway in healthcare delivery and promising patient engagement strategies to the driving factors behind mergers and acquisitions in the spaces of patient engagement and networks and delivery expansion.
About Capital Insights
SC&H Capital has launched Capital Insights – a content series to highlight our in-depth knowledge of prominent industries in the market place through the perspectives of innovation and differentiation. Our goal is to share actionable insights that businesses can use to assess their competitive advantage and potential strategic options through this information.