Six Ways to Look at Your Next Consolidation

If you have a leadership role in any healthcare organization—a health system, a physician group, a commercial health plan, a vendor—it’s likely you are considering your next consolidation. As you do, we urge you to think about it in six ways.

Why six ways? One of us long ago started this discipline—looking ahead, behind, up, down, left, and right—as an infantry officer in combat, and it has proved to be a helpful technique ever since. Looking at an issue in more than six ways often results in nothing getting done. However, looking at it fewer than six ways leaves one open to being blindsided, perhaps facing serious consequences.

Now, about that next consolidation: Here are considerations regarding the six ways we recommend that healthcare leaders think about it. And, of course, these considerations raise important questions these leaders should be contemplating.

Look Behind

Looking back, the key questions are: What have we done in the past? And will it work to do more of the same?

For health systems, consolidations went through the “land grab” stage. Health systems merged into larger and larger entities and then took advantage of economies of scale. Next, many health systems began their “shaping phase,” discarding pieces that hadn’t worked out and adding others that looked more promising. They were more selective and looked closely at whether the next consolidation was financially accretive. They looked for more regional market synergies.

For vendors, many older firms aggregated newer ones to present a wider range of attractive services through the same brand. As vendors consolidated, they also standardized parts of their business and sought economies of scale.

For physician groups, it has been a time of tumultuous change. Many formerly independent practices now are consolidated into health systems, consolidated with other physician groups (sometimes also involving private equity firms), employed by national practice companies, or tied to health plans. Each of these routes brings its own set of cultural and leadership changes.

As health plans continue to consolidate, most have encountered a fork in the road. They ask, “Do we use our market leverage (if we have any) and hammer health systems and clinicians into lower prices?” Or “Do we change incentives—for example, experimenting with value-based payments?” Other options include demanding bundled prices for high-cost procedures and investing in new algorithms and artificial intelligence in the hope of identifying waste.

In short, each organization should consider whether its next consolidation is a repeat of its last one. Then, before acting, the organization should quickly review the five other perspectives.

Look Left

Government policymakers are reshaping healthcare markets, and the combined effects are significant. Uncertainty regarding future policies is high right now at all levels. State approaches to Medicaid vary widely.

Managed Medicaid offers an opportunity for some health systems and physician groups to develop and evolve new payment approaches and population health processes. However, there is considerable uncertainty at the state level as to which patients will be covered and how deeply committed states will be to population health.

The potential for new association health plans with different benefit packages and different eligibilities may change prices for other plans and other services.

Healthcare organizations need to factor governmental uncertainty, and political risks of still more changes into pricing and consolidation decisions. But the devil is in the details.

Look Right

New competitors and disrupters are continuing to arrive, and some old allies are becoming quasi-competitors; and new relationships are being developed between formerly unaffiliated organizations. Healthcare organizations are faced with the decision of whether (and how) to fight the new disrupters or consolidate with them.

Consider, for example:

• Health plans and health systems are considering new joint ventures.
• Health systems are considering new non-
merger linkages to pursue telehealth, population health, artificial intelligence, and a host of other new initiatives.
• Some healthcare organizations are investing in startups.
• Federally qualified health plans may find themselves with new opportunities to be allies with other healthcare providers.
• Behavioral health providers may have new opportunities to link with physician groups and health systems.

Artificial intelligence (AI), in particular, promises to be huge disrupter. We believe AI will bring about tremendous changes in health care, and that a variety of new alliances are worth considering to keep step with those changes.

Look Down

We should look inside ourselves and our organizations, and really understand our people. All our past consolidations have involved shifts in roles, responsibilities, incentives, and performance within our organizations. An important first step may be to focus on better integrating the parts that have already been added to the organization.

Clinicians may be going through the biggest changes. Most began as intrinsically motivated, but many now are flaming out under a wide range of external demands. The challenges they wrestle with have shifted from how to improve health care and excel as care providers to tracking their required RVUs, wondering if it’s all about the money, and trying to identify which hoops they must jump through to get it—and questioning how long they want to sustain this effort. This situation raises some profound questions: How does the industry help physicians get beyond burnout? Do we change our care delivery models? Do we shift faster to nonphysician clinicians?

Look Ahead

To date, a large number of consolidations have involved incremental steps, for example in the “land grab” and “shaping” stages. We have spoken with many leaders who know intuitively that it’s time to consider a new, albeit riskier, next step: It is time to use these larger, reshaped health systems to change how care is delivered, but at what cost point is not clear. It may be time for deeper links between health plans and health systems, or for bigger consolidations in IT.

Look Up

Looking up brings us face to face with the most fundamental question: Why are we pursuing all this consolidation? Maybe it’s time to shift our focus and remind ourselves of our higher purpose.