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How healthcare M&A push consumer-centric, value-based care

By Kyle Murphy, PhD

While the value of health services deals showed positive increases and the volume maintained a consistent pace from the first half of 2013 to the first half of 2014, several health sectors saw reductions while other saw upticks in deal volumes during the same period and could indicate the early effects of the Affordable Care Act (ACA).

Those findings come from a recent a PricewaterhouseCoopers (PwC) US Health Services Deals Insights Quarterly. Compared to 289 total deals during the first half of 2013, the first and second quarters of 2014 included 143 and 138 announced deals, respectively. While the volume is down, the value is up — rising from $17.2 billion in 2013 to $24.6 billion in 2014 over the first two quarters.

While the numbers are relatively close, their composition is the result of several changes across health services sectors. On the downturn are decreases in the volume of deals for hospitals (-50%), behavioral health (-50%), home health (-25%), and physician practices (-7%). On the upturn are managed care and long-term care, which saw increase of 160 percent and 20 percent, respectively.

According to the authors of the report, the large upswing in managed care deal volumes is tied to attempts at adapting to the early effects of the ACA on revenues. “In the managed care sector, strategic buyers continue to seek membership volume and infrastructure related opportunities related opportunities through acquisitions to offset potentially lower margins under the ACA and to better manage the shift toward population health strategies,” they claim.

In a spotlight article featured in the report, PwC highlights the potential effects that mergers/acquisitions and innovation are having on the movement toward consumer-driven healthcare, particularly one that focuses on value and patient-centeredness.

“Traditional healthcare players were slow to respond to this shift, largely due to the highly fragmented nature of the industry and its focus on patient care,” the authors maintain. “Rather than focusing on the consumer, the industry focused its innovation on cost containment to offset the onslaught of reimbursement rate pressures.”

This focus on preserving their patient base and volume through consolidation by hospitals has apparently cleared the way for non-traditional players to vie for consumer dollars.

“These new entrants are emboldened by the fact that more and more patients are open to alternative means of care delivery,” the authors explain. “This time, the new competition does not come from familiar foes. Rather competition comes from businesses that are traditionally considered telecommunications, technology, retail, or consumer products companies.”

To stay competitive, traditional healthcare organizations are working to reconsidering their business models for delivering care and looking to leverage patient data as a means of redesigning their approach to care delivery and connecting with patients in the pursuit of high-quality care.

“We expect this evolution in care delivery to continue,” the authors conclude. “While many players will try to address this new market with homegrown options, we expect that companies will use M&A to consolidate the necessary technology and intellectual property needed to capture the consumer.”

Read the full report here.

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