Healthcare M&A: Is It Different This Time?

Chris Stanley via Healthleaders Media

Hospital companies aren't the only ones seeking to disrupt. Insurer Aetna, after being blocked from merging with another insurer, Humana, is trying a different tack by merging with CVS, blurring the lines of what type of business it's in.

UnitedHealth Group, another company long identified as an insurer, has been diversifying its business lines for years, notably with its purchase of DaVita's physician group.

While healthcare M&A is more common than it used to be, many of the reasons for it haven't changed that much. Those that participate in mergers still cite scale and leverage as top benefits. But the nature of competition is changing, as bright lines between healthcare businesses become blurred by what some are calling asymmetric competition.

Negotiating leverage still key 

Chris Stanley, MD, a former system vice president of population health at CHI and now a director in Navigant's healthcare consulting practice, said until two or three years ago, many hospital or health system mergers were horizontal—primarily built on the theory that "if we're larger in size and have more hospitals, we have more negotiating clout against payers and, as we see Medicare and Medicaid payments dropping off, we'll just be able to ratchet up on commercial rates."

But that strategy has often not played out well for a variety of reasons, from FTC challenges to difficulties with cultural assimilation. "So, the intent has shifted to the idea of gaining operational efficiencies that will save us from having to duplicate IT systems, compliance or legal, or central administrative overhead," he said.

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