M&A losing its appeal
Survey responses indicate less of an appetite for mergers and acquisitions this year than in 2018. In 2019, 12.5% of CEOs said M&A best describes their growth strategy, down from 25.8% in 2018.
“Success for the future of healthcare organizations is not so much getting big for big’s sake,” said Howard Kern, CEO of Sentara Healthcare. “I think that’s what a lot of us are realizing. We’ve always had that view, frankly.”
In many M& A deals, systems haven’t focused enough on actually achieving the promised cost savings and efficiencies, said Intermountain Healthcare CEO Dr. Marc Harrison. “I think very few people have actually gotten any value out of it,” he said.
San Diego-based Scripps Health is among the 42% of respondents that said their priority will be updating current business lines, although CEO Chris Van Gorder said the system would also welcome joint partnerships that can bring both economic savings and greater expertise. Scripps is already involved in a number of such deals.
Norfolk, Va.-based Sentara also plans to update current business lines by firming up its acute-care operations and making sure it has the right digital consumer technology.
Ultimately, Kern envisions the system partnering to develop that platform further and partnering with Google or Apple. “If you look at banking, retail, they’re way ahead of healthcare,” he said. “It’s undeniable that healthcare is going to end up there.”
One-quarter of CEOs said innovation will define their 2019 growth strategy. Among them is New Orleans-based Ochsner Health System, whose CEO, Warner Thomas, said innovation means using digital tools to connect more deeply with its existing patients and attract new ones. That includes using its online patient portal to make appointments, send messages and use telemedicine. The not-forprofit system is rolling out a suite of new digital medicine capabilities, such as a hypertension program that lets providers monitor patients’ blood pressure, exercise, diet and medication adherence remotely.
Among CEOs pursuing M&A this year, only about 4% said they’re planning a vertical merger. PwC’s Isgur said that’s likely because there are only so many prospects out there for such deals. It’s not the kind of deal systems do repeatedly, he said.