Positioning for Post-COVID Growth in the Ambulatory Market—Is Your Organization Prepared?
The past decade has brought widespread consolidation in the healthcare world—and it doesn’t look like the trend is losing momentum. The conditions for further industry consolidation—particularly in the ambulatory market—are ripe, and they’re likely to continue accelerating as we inch closer to the post-COVID chapter of the healthcare industry.
According to Bain & Company’s 2020 US Front Line of Healthcare Report, as many as 70% of physicians in independent practices were willing to consider being acquired by a larger organization. The same survey reported that half of healthcare administrators are “highly likely” to acquire at least one to two new care sites in the next two years.
Shifting Systems: Inpatient to Outpatient Care
Researchers at Deloitte predict continuing declines in hospital bed demand post-pandemic, as well as the rapid acceleration of ambulatory market consolidation.
During COVID-19, in-hospital procedure volumes decreased to make room for patients, while outpatient services expanded to adapt to changing needs; adding alternative clinics, virtual care and telehealth capabilities, and outpatient retail clinics to overall care offerings. These methods have tended to be more cost-effective, providing higher value to patients in need of more convenient care.
With rapidly shifting models of patient care, widespread financial losses during COVID-19, payment models inaccessible to smaller organizations, and rising competition—conditions for consolidation in the ambulatory market are now ripe.
Ambulatory Market Growth and Consolidation—By the Numbers
The ambulatory market is growing rapidly—building on the inertia of the past two decades. From 1994 to 2018, overall hospital revenue saw enormous gains from outpatient care services, growing from 28% to 48%, according to a 2020 Deloitte report. Between 2011 and 2018, hospital outpatient revenue outpaced that of inpatient models—with a compounded annual growth rate of 9%, as compared to 6% growth for inpatient care.
Mergers and acquisitions (M&A) have also increased, especially over the last eight years. According to new research by Deloitte, the top 10 largest health systems grew to command nearly a quarter of the market share between 2012 and 2018, owing to both growth in revenue and market consolidation. During the same period, those top 10 systems’ revenue grew close to two times higher (82% vs. 45%) compared to independent hospitals and smaller health systems in the market.
Private equity (PE) groups are increasingly driving consolidation in the ambulatory market. According to a research letter published in JAMA, PE acquisitions rose from 59 practices in 2013 to 136 practices in 2016, totaling 355 PE-acquired practices (that’s 1426 sites and 5714 physicians in total) in just three years. While PE-backed health systems have been difficult to study due to widespread industry NDA’s, these well-capitalized players are undoubtedly making their mark in the ambulatory market.
Positioning Insights for Post-Pandemic Growth
With the right acquisition strategy, there is an enormous opportunity for health systems and equity-backed organizations to position themselves for growth post-COVID. Right now, large healthcare organizations are uniquely positioned to grow their revenue streams—and empower smaller entities struggling in the wake of the pandemic. A successful acquisition strategy should consider the following points:
Focus on speed to market. You must move aggressively before your competitors do—and before the opportunity passes. Start by performing a market analysis of your organization’s current capabilities. Then, identify potential acquisition targets. Assemble your expert M&A “deal” team to cover your skills bases and make sure merger or acquisition is conducted in accordance with your system’s mission and values.
Consider the organizational structure. It’s critical for health organizations to have a plan in place to both optimize clinical care efficiency and access more complex payor agreements. There are several structural options to consider, depending on your organization’s scaling strategy; the formation of provider Supergroups, clinically integrated networks (CIN’s), ambulatory networks, and other creative models. Assess how your scaling strategy fits with your contracting strategy, and make your move from there.
Keep long-term physician satisfaction in mind. “Today, physicians favor acquisition by organizations that would provide increased financial stability but still offer physician autonomy,” state the authors of the Bain report. With consolidation pooling practitioners together in ever larger groups, it’s important to stay mindful of their need for autonomy and flexibility. With the right organizational structure and integration plan, you’ll ensure practitioner retention and open doors for innovation where it’s needed the most.
Focus on Financial Performance. Rapid integration can be cumbersome, and can lead to decreased financial performance without the right strategy in place ahead of time. Instead, buyers should carefully consider which integration points make the most sense, and allow enough time for new physicians and their teams to settle in at their own pace before overhauling to adapt new processes and technology. To simplify the process, MSMs revenue cycle technology is compatible with EHR systems your acquisitions already have, and our consultants’ expertise can help you maximize collections while providing visibility into the performance of your new operations.
Looking Ahead with MSM
MSM's team, technology, and knowhow in revenue cycle and physician practice management can help you optimize your ambulatory acquisition strategy, while ensuring the financial performance of your assets. Our expert team of healthcare consultants can help you navigate the nuances of the M&A process, ensuring your healthcare organization is strategically positioned to capitalize on the wave of consolidation as we look to the future of a post-pandemic healthcare system.
Matt Haberman, CEO