The transition we’re witnessing from the fee-for-service model to value-driven care is a watershed moment for the health industry. And its momentum continues to build, steadily reshaping the system itself and forcing health organizations to rethink their structure, top to bottom.
But some are wary of their ability to ride the tidal wave that is value-driven care, instead feeling pulled down by its undercurrent of variables:
- How do we keep up with these new standards of competition?
- How do we add more value while at the same time reducing cost?
- How can we adhere to increasingly complex reporting requirements?
For a growing number of health companies, one powerful answer to these and other industry pressures is unlocking the scalability, efficiency, and sustainability of “smart growth.”
Addressing the new reality
A 2016 survey found that health executives anticipate the trend of increased M&A growth to remain well above historical health sector averages. In fact, 56% of respondents indicated they expected to pursue acquisitions actively over the course of the next 12 months.1
This expanding push for growth lies squarely within the changing nature of reimbursement.
Reimbursement based on outcomes, as opposed to fee for service, is pushing providers to broaden their scope of care across a fragmented system. This scaled-up ability to diagnose, monitor, and treat chronic diseases—leading to more effective treatments and shorter recovery times—offers an opportunity to maximize outcomes while eliminating ineffective or wasteful modes of treatment.
But picking the right growth path for a given organization, whether it’s in geography or service level, is the real key to unlocking pricing power and truly competing for scale.
Enter smart growth.
Growing intelligently, growing with purpose
In the value-driven paradigm, growth is survival, but smart growth is success.
Be it vertical or horizontal expansion, it’s vital at the outset to understand that growth for growth’s sake is counterintuitive, particularly in the face of an increasingly complex and competitive landscape. Instead, organizations must first examine all the growth variables simultaneously, determining:
- the desired outcome and positioning,
- the current gaps or risk areas, and
- the optimal operational structures for sustainability.
Knowing these three things will help light the way forward, illuminating the best organizations to align with the strategic next step and the best organizational and financial structure for all parties involved.
For example, if a physician group wants to prioritize a focus on patient care over implementing new technology, its strategy might be to find a larger physician group with a more robust infrastructure to either acquire or partner with.
A variety of deal structures also must be explored. Where a merger or acquisition may not be the right fit, health companies are increasingly looking at joint ventures to expand their geographic footprint and have more input into the continuum of care. Given the transformative nature of today’s health sector, leaders also see these types of alliances as an additional opportunity to manage risk, improve the quality of care, and lower costs.
Cost pressures also encourage an increase in scale, as the reporting requirements demand a more complex and robust technology infrastructure. Here, larger players will have an advantage. Armed with the overhead dollars to fund IT and clinical systems, they can improve purchasing contracts, negotiate better deals with large commercial insurers, and enhance organizational capabilities.
But as mergers, acquisitions, and other alliances are used as tools for achieving scale in the value-driven market, the real challenge is optimizing cost savings across the new, combined organizations.
Raw cost avoidance, such as growth for growth’s sake, is shortsighted. Just as an organization chooses a cheaper option to save money, the end result can be detrimental to patient outcomes and increase the total cost of care. Cost optimization, on the other hand, allows organizations to save money in areas that affect patient care the least while making investments that can achieve better and more sustainable outcomes in the long term.
By shifting to a cost optimization approach, organizations realize a type of financial stability that empowers them to look past the present and invest in other opportunities to grow and improve upon their value-driven approach.
Embracing technology through scale
Although lagging behind other industries in the realm of information technology, health organizations are increasingly adopting IT solutions to help simplify and streamline their operations. And technology often is a deciding factor in the realm of M&A activity and smart growth approaches.
As some organizations are unable (or unwilling) to provide the required capital outlay for an electronic health record (EHR), many are seeking to bridge the gap through partnerships, mergers, or acquiring technology companies outright. Those with robust EHRs are looking to boost their scale as a way to maximize value from those investments. And all are focused on technology and digitization as tools to help find efficiencies in operational processes, enhance clinical decision support systems for providers, and bolster patient engagement.
At the center of this technological change is the consumer, who’s more networked, engaged, and empowered than ever before. They’re accustomed to technology making their lives easier and demand a similar experience in their health and wellness with simple, coordinated interactions. With this move toward consumer-directed healthcare, organizations also are adding incentives for customers to use new technology such as wearables and leverage the additional metrics to improve upon the continuum of care.
- EY Capital Confidence Barometer: Health Care, EY, July 2016.
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.