Mergers, acquisitions, and joint ventures are increasing rapidly in the healthcare industry, as hospitals, health systems, and other providers secure partners to gain the competencies and scale needed to succeed in the emerging care delivery and payment environment.
Under the value-based business model, which is expected to replace the volume-based business model during the next decade, hospitals, health systems, and other organizations will be responsible for providing services with the best-possible quality and outcomes at the lowest-possible cost, while managing the health of a specific patient population along the continuum of care needs. New expertise and significant capital resources, often beyond the reach of independent hospitals and even small health systems, will be required.
Given these circumstances, regional systems looking to expand their scope, market reach, and clinical, financial, and strategic capabilities have been particularly active on the acquisition and joint-venture fronts. Additionally, new and different competitive entities are entering the healthcare space, with innovative partnerships announced nearly daily. Private equity firms are investing directly in hospitals and other providers. Insurers are buying providers or entering the care delivery market directly. Not-for-profit organizations are forming for-profit ventures; and for-profits and not-for-profits are taking steps to exert control over public-hospital ownership. The provider landscape is changing significantly, and consolidation is a reality.
Since early 2009, Kaufman Hall has been collaborating closely with senior management teams and boards of hospitals and health systems nationwide to identify and evaluate their strategic options in the rapidly changing healthcare environment and, if appropriate, to structure and execute partnership arrangements. Since that time, we've worked with all types of organizations on both sides of the table: small and large; independent hospitals and multi-hospital systems; regional and national systems; and academic medical centers, public hospitals, and children's hospitals.
As a result of this experience, we offer here eight lessons that can help healthcare boards and executive teams make the best-possible strategic partnership decision.