Volume 5 Issue 10, May 8, 2018
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US healthcare is too damn expensive – The Organization for Economic Co-Operation and Development (OECD) found that the US devotes 18% of its GDP to healthcare, a proportion that continues to grow from 12% just a decade ago. Unfortunately, we are one of the least healthy countries of the OECD’s 34 members. One can argue that this is due to a number of factors, but the bottom line is still costly. Can provider size address this problem?
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The new provider is an insurance company – Insurance companies are leading the way in the consolidation of the “outpatient pathway” and are providing an example of how to rapidly gain a strong footprint in desirable healthcare verticals. They also provide an opportunity for consolidated organizations, whether in home care/hospice or addiction treatment, to partner directly with insurance entities and position themselves for future growth.
Instability in the funding environment – Consolidation can be an antidote for some of the instability in many funding environments, especially Medicaid reimbursement, which can vary considerably between states. A multi-state presence can mitigate some risk and increase the diversity of a larger organization’s funding streams.
Transparency requires a larger, retail mindset – The Center for Medicare and Medicaid Services (CMS) is strongly encouraging providers to become more transparent and several states are requiring price transparency for a variety of healthcare services and products. This retailing of healthcare will likely accelerate and place significant pressure on small healthcare providers.
Strategic opportunities abound + pent up Baby Boomer exits – Consolidation opportunities are expanding as acquirers are increasingly marketing their interest and Baby Boomers are ready, whether as the CEOs of a nonprofit IDD provider or the owner of multi-site DME company. The convergence of these two factors is pushing the envelope of merger and acquisition activity.
Abundance of capital – There is no shortage of investment capital in the US today and healthcare has been historically underinvested, especially by private equity. Investors and buyers not only see the opportunities, they want to build consolidated platforms to quickly build large healthcare companies.
Significant disruption and the factors above translate into opportunity, if an organization can scale its operations and diversify its offerings. Remarkably, nonprofit and for-profit organizations, small and large, see the same thing – the necessity of consolidation in a turbulent healthcare marketplace.
Tom was the Founder and Managing Partner of VERTESS. He was a Certified Merger & Acquisition Advisor (CM&AA), consultant, and Licensed Psychologist with over 35 years of very successful national experience in the healthcare marketplace, including co-founding and building a $25 million behavioral health/disabilities services company. Tom represented sellers and investors across the healthcare spectrum and was recognized for his executive leadership in the 2005 Entrepreneur of the Year issue of Inc. Tom passed away in December 2018.