Continuing a longtime trend, corporate mergers and consolidation, especially deals involving private equity firms, are in the crosshairs of multiple federal policymaking initiatives. The Biden administration has announced augmented guidelines for initiating antitrust challenges from the Justice Department, while a bipartisan Senate bill aims to curb consolidation through new taxation on shareholder value added by mergers.
The headlines consistently treat it as fact that consolidation holds built-in disadvantages for the public: fewer choices, the ability to set unfair prices, negative impact on workers, stifled innovation. The refrains are familiar.
Related: Washington takes long, angry look at healthcare consolidation
I’m a career corporate officer who has overseen more than 30 consolidations and led post-merger integrations of 70-plus companies, primarily in healthcare. I don’t hide from this record; I’m proud of the value we delivered to our customers — and I strongly believe it is vital to reset the understanding of consolidation. It is a marketplace necessity.
Healthcare is an ideal industry to examine the effects of consolidation because it is so crucial to the economy and every American's well-being. The industry represented 17.3% of U.S. gross domestic product in 2022. That’s $4.5 trillion, or more than $13,000 per person, according to federal data, epitomizing the central challenge of any industry: how to deliver the highest-quality service at the lowest cost.
The unavoidable reality is that healthcare providers have no good answer to that challenge unless they are in a near-constant posture of consolidation.
When healthcare providers merge, they can streamline administrative processes, eliminate duplicate services and negotiate better supplier terms. Collectively, these actions free up cash for investment, contributing to better patient experiences and outcomes. It’s important to remember that cash flow is the oxygen of any business, and it is critical to manage it efficiently.
Healthcare provider organizations created through consolidation of fragmented sectors of the industry can invest in advanced technology and infrastructure, enhancing the overall quality and accessibility of care. They have more resources to implement advanced medical technologies, such as electronic health records, telemedicine platforms and diagnostic tools. Such innovations can reduce medical errors and enable remote access to healthcare services.
Of course, consolidation can turn negative when it leads to the formation of oligopolies or monopolies at the local, regional or national level. In such scenarios, a few companies gain disproportionate market power, which can stifle competition, reduce patient choice, decrease innovation and lead to higher prices. But we have regulatory oversight and legal remedies in place to prevent this.
As an example of the benefits of consolidation, consider diagnostic tools used in radiology and imaging, a fragmented segment of healthcare. Larger radiology groups can reinvest savings from mergers and raise capital to invest in advanced technology, which is often out of reach for smaller providers.
At a national home health company I ran for several years, we merged and consolidated more than 30 U.S. “mom and pop” companies. The resulting optimization and savings funded a multimillion-dollar customized IT platform to manage and monitor thousands of daily patient visits at a higher standard. We distributed thousands of iPad tablets to our field care teams with customized apps that replaced cumbersome, error-prone paperwork and checklists. The teams could spend more time per visit focused on care, significantly improving the patient experience.
Consolidation that creates larger and more efficient healthcare organizations can also provide financial stability, enabling investments to improve patient outcomes such as additional staff training and community health initiatives. These investments can equip staff with the necessary skills and knowledge, empower patient education programs and address social determinants of health, hopefully reducing the prevalence of chronic conditions and improving population health.
The grim reality of healthcare today is that we must do more with limited resources. The percentage of our seniors, who use a lot of healthcare, continues to grow. Yet the U.S. is projected to face a shortage of up to 324,000 physicians and nurses by 2034, according to the Association of American Medical Colleges.
Healthcare staffing shortages, including lower-wage occupations, lead to more medical errors, longer patient wait times and reduced care quality. In 2022, market research firm Survey Healthcare Global found 34% of doctors observed an increase in medical errors due to both staff shortages and the additional stress and fatigue created by the shortages. Additionally, the survey found that 30% of doctors attributed increased patient suffering and negative impacts on patient health to staffing challenges and the resulting delays in care.
A new narrative must take root. We can’t continue with business as usual. The prevailing view that consolidation must be slowed or even stopped is toxic to the essential goal of better healthcare for all. Lower prices and better patient outcomes are the goal, and consolidation is the best pathway.
James Calver is a partner at executive staffing firm TechCXO, where he serves as an interim “CEO-for-hire.” He’s also an operating expert for investment firm Metropolitan Partners Group, primarily in the healthcare and life sciences sectors.
