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The hidden costs of healthcare m&a deals

A portfolio approach is key to scooping up otherwise lost savings

Overview

Record levels of mergers and acquisitions (M&A) are fundamentally reshaping the US healthcare landscape. Healthcare providers are making these acquisitions to gain economies of scale; shift from volume-based to value-based care; address local market characteristics to remain competitive; better appeal to consumer wants and needs; and expand their digital health and eHealth capabilities.

While this activity expands the set of strategic options available to providers, it also creates management complexity comparable to a game of three-dimensional chess. Providers must view opportunities and threats from both horizontal and vertical perspectives, as well as a rapidly emerging digital health dimension. The game can only be won by viewing the strategic growth opportunities holistically—all three dimensions simultaneously—as investment portfolio managers would. Doing so successfully means getting the most out of M&A transactions. Failure to do so means leaving money on the table.

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"Accenture estimates that in traditional horizontal M&A by healthcare providers, at least 10 percent of the anticipated cost savings are left on the table."

Background

Horizontal acquisitions by healthcare providers have failed to generate the desired synergies; some have actually resulted in diminished operating performance of the combined entities. The desire to realize perceived the benefits quickly often means that deals are closed quickly, without rigorous planning to achieve the benefits in both the near- and long-term.

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Key Findings

Accenture estimates that in traditional horizontal M&A by healthcare providers, at least 10 percent of the anticipated cost savings are left on the table.

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Analysis

Acquisitions of non-acute providers will reach 84 percent of the total acquisition volume by 2018. Digital health acquisitions—including in eHealth, telemedicine, population health management and health analytics—will expand by a multiple of 8, from 1 percent of overall volume in 2014 to 8 percent by 2018.

Recommendations

Provider executives must avoid the trap of viewing deals as one-off opportunities to create a new revenue stream or add market share. The best prepared executives will systematically and rigorously manage M&A opportunities as a portfolio, and evaluate how a potential deal will influence the whole.

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