Merger and acquisition (M&A) activity across the healthcare industry continues to grow in terms of both the number and size of deals (Figure 1, below). While consolidation of hospitals and physician groups is not new, the vertical integration of non-traditional players (CVS–Aetna, Walmart–Humana–Kindred, Optum–DaVita Medical Group) demonstrates that no one is “staying in their lane” anymore.
Additionally, the number of more complex and high-risk physician partnerships continue to grow (Figure 2, below).
Recent numbers on provider consolidation suggest that the big are becoming bigger (Figure 1), with the 5 largest announced mergers in 2017 capturing a staggering $62 billion in patient net revenue (~7% of total US hospital revenue).1, 2
As the dust settles from the next decade of horizontal (eg, physician groups, ambulatory assets) and vertical (eg, acute care, health systems, retail firms, etc) consolidation, IDNs will make new purchasing decisions that align with value-based initiatives and that objectively consider and leverage stakeholder feedback.
Strategic suppliers will need to evolve their customer engagement model from being focused on a transactional relationship to becoming a trusted strategic advisor. Suppliers aiming to accomplish this goal should follow these steps:
Recognize that product value will not always translate to customer value, especially as customers increasingly take on more risk-based payment arrangements and are measured on outcomes relative to total cost of care.
Products will soon become commodities as cost savings gain advantage over physician preference items. Realize the opportunity to differentiate offerings through such services-around-the-product.
Leverage the trend that sees providers increasingly moving toward dual- and single-source supplier arrangements and making trade-offs between product value, costs, innovation, and stakeholder preferences.
Understand that comparative effectiveness and real-world internal data will replace traditional physician-driven decision making. The role of the value analysis team will grow in importance and influence as the centralized decision-making entity makes system-wide decisions on what to keep in or remove from the supply chain.
Recognize that advanced analytics will drive objective decision-making with the use of data aggregation and business intelligence solutions focused on performance improvement to reduce clinical, operational, and financial variability.
Relationships need to evolve, and IDNs will be looking to work more intimately with suppliers that understand their business challenges, offer brand-agnostic services and solutions, and provide deep, meaningful insight into product use and stakeholder preferences. Adapt your offerings to engage IDNs under these new terms.
This article was written in collaboration with Sg2, a vendor-neutral strategy advisory consulting firm that helps healthcare organizations integrate, prioritize, and drive growth and performance across the continuum of care. The opinions expressed in this article are those of GoSpotCheck, and do not reflect an endorsement by Sg2.