Mergers and acquisitions
For many providers, the purchase and consolidation of facilities and services remains a highly popular growth strategy. When fully realized, M&A can bring reduced costs through the sharing of functions, improved market power and greater negotiating clout. In other cases, governments and payers have looked to M&A as a solution to poor service quality or financial failure. But there are significant challenges with conducting M&A, and the track record in the health sector is not impressive. According to KPMG research, many of the root causes of poorly-executed M&A transactions come down to three main mistakes: a lack of clarity about the objectives, failure to conduct rigorous due diligence and a lack of attention to culture change and integration both before and after the merger.
That is not to say that mergers cannot be effective. Indeed, some jurisdictions have enjoyed strong success by using mergers as a strategy to shrink the overall size of the hospital system. In the Canadian province of Ontario, for example, the government imposed consolidations on independent hospital corporations and, as a result, reduced the number of providers from 220 to 150, while also closing 35 individual hospital sites.
Expansion into new markets
There are a number of ways providers can take advantage of new markets to drive growth. In the US, for example, a recent health tracking study found that in all 12 markets studied, hospitals employed one or more types of geographic competitive strategy, including buying or building full-service hospitals or freestanding emergency departments, buying or establishing physician practices, and developing a regional presence through emergency medical transport systems.1
In most cases, the aim of expansion is to improve efficiency and capture additional patients with more advantageous reimbursement rates. However, many payers fear this strategy will lead to price increases, a notion supported by recent data on mergers in the US market.
There are numerous examples of this strategy at work around the world.
- Facing restricted growth opportunities in their domestic market, Ramsay Health Care in Australia looked for opportunities to take its operating model into different environments. The organization won contracts to deliver elective surgery in the UK, acquired a 57 percent stake in French operator Groupe Proclif SAS (now known as Ramsay Santé SA), and is now actively looking for further acquisitions in other markets.
- Narayana Hrudayalaya, a group of health centers based in India, is adapting its model to support entry into a number of different countries, including the Cayman Islands, which has given the organization quick access to the huge US market without the daunting regulatory hurdles.
- India’s Fortis Healthcare Limited and the Apollo Group have both leveraged their clinical leadership in new markets to build new hospitals throughout the country and across the Asian region.
- In Japan, SECOM Co. Ltd. a leading security firm, and Toyota Tsusho Corporation, a trading and supply chain specialist, have formed an alliance with Kirloskar Group, a major supplier of high-tech medical equipment based in India to develop general hospital services. The partnership works because of the advantages that each party brings to the table: Toyota Tsusho can mobilize a global network and rapid business development capability; Kirloskar Group brings its local knowledge and networks; and SECOM brings operational expertise.
- In many markets, expert operators are taking over the management of public hospitals or bidding for contracts in service areas that, traditionally, have been the exclusive preserve of the public sector but are now being moved into the private sphere to reduce government liability and investment.
The success of any expansion into new markets relies on the organization’s ability to effectively transfer their management model and methodology. To achieve this, organizations will want to ensure they secure a majority stake in any takeover, or win long-term concessions that allow sufficient time for new approaches to be applied and investments to be returned. Those expanding into new foreign markets may also consider creating joint ventures with local partners as a way of navigating often complex local regulatory regimes while securing organizational capabilities in marketing, staffing and adjusting to local culture.
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Redesign and improvement
In many systems it has been easier to focus on improving revenue. Reducing costs is difficult but techniques for doing this, and the areas where there is the most scope, are generally well known. In our experience, most healthcare providers still have many opportunities to improve their quality and margins. However, the more adventurous of these strategies may well require collaboration with other organizations, especially where there is a need to reshape the whole local health system, for example through the closure of sites. This may be an area of opportunity for partnership where an ‘activist payer’ can help to unlock change.
Outsourcing clinical and non-clinical services
Outsourcing non-clinical services is certainly not a new phenomenon. Indeed, in mainland Europe, providers have a long history of outsourcing functions such as cleaning, laundry and catering. Over the past few years, there has also been a strong trend towards the outsourcing of key operational functions such as facilities management, office services, financial functions, IT systems management, the transactional components of human resource management, procurement and logistics.
Today, there is growing interest in moving outsourcing closer to the front line in areas such as sterilization, patient transport, pharmacy, imaging, reporting images, laboratories and the operation of specialist clinical services such as dialysis, mental health, chemotherapy and even intensive care. Philips eICU (part of Royal Philips Electronics of the Netherlands, a diversified health and well-being company), for example, provides remote support to a large number of community hospitals in the US.
At the same time, the approach to outsourcing has matured significantly over the past few years, leading to a much wider set of models for improving value and efficiency that go beyond simply outsourcing individual function areas. Indeed, many organizations are now taking a much more strategic approach to outsourcing by considering their various options against the importance of the process to the business and the extent of the improvement required.
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Getting the best out of the workforce
Given that the most significant costs for most healthcare organizations stem from the workforce, it is not surprising that many providers are seeking ways to increase productivity and enhance employee efficiency. This will, in turn, require providers to pay closer attention to job design, pay and conditions, and developing the basic systems to improve workforce management.
However, we have also noted a fundamental shift away from crude approaches to reducing cost, focusing instead on more strategic options based upon engagement and improvement. According to our research, leading providers exhibit five key habits to drive efficiency and productivity.
- A strategic focus on value for patients is embedded into the DNA of the organization and reflected in the recruitment, staff objectives, appraisals and reward systems.
- Professionals are empowered to take responsibility for creating value, supported by a focus on teamwork, the granting of appropriate autonomy, control over work processes and high-quality leadership at the front-line.
- Task and process redesign is encouraged and supported.
- Staff performance is actively managed using outcome measures.
- High-quality staff management practices are embedded into the operating model of the organization.2
1 Emily R. Carrier, Marisa Dowling, and Robert A. Berenson-Hospitals’ Geographic Expansion In Quest Of Well-Insured Patients: Will The Outcome Be Better Care, More Cost, Or Both? Health Affairs 31, No. 4 (2012): 827–835.
2 Value walks: Successful habits for improving workforce motivation and productivity. KPMG International, 2012.