By Tanja Yardley
Consolidation. Cue the dramatic background music and the darkening sky. To many, it’s a four letter word – spelled with 13 letters – that inspires visions of faceless corporations gobbling up helpless victims and leaving a wake of broken dreams. Like it or hate it, consolidation is an emerging market force in our industry and we need to understand, evaluate and respond in order to navigate our changing healthcare system and create thriving, sustainable business models.
In the big picture, change – any kind of change – arouses some level of trepidation. If that change is perceived as a threat, that trepidation becomes fear. That same fear shuts down our creative and critical thinking skills and narrows our focus to self-preservation. In the worst scenario, that focus on self-preservation leads to a victim mentality. That victim mentality naturally lends itself to the creation of a story in which there’s a villain and in the process of focusing on that villain, we lose focus on the bigger picture. I’ve seen it happen. The resulting behaviours vary from apathy to anger to activism.
What if, instead, that initial level of trepidation fed into curiosity? What is this change? Why is it happening in our industry? What’s driving it? What can I learn? How do I decide whether to avoid it or to embrace it? Is this change actually an opportunity?
In this article we will explore the various market forces driving consolidation and evaluate some of the pro’s and con’s of this trend.
Healthcare Consolidation
In its simplest form, consolidation is simply the combination of two or more previously separate businesses, as a logical response to market pressures, in such a way that advances the strategic objectives of both.
Consolidation can be “horizontal”, meaning that similar providers join together to provide a broader geographic reach to customers, or “vertical”, meaning that different types of providers get together to provide a broader range of integrated services, or a combination of the two.
There are a variety of different formal and informal options to achieve this, ranging from acquisitions, mergers, affiliations, partnerships, joint ventures and preferred provider networks. It is critical to assess the marketplace drivers when you consider the variety of options available.
The main driving forces that I observe:
1. Increasing healthcare delivery costs
- Rising operating costs for rent, repairs, equipment
- New technologies arising
- Rising labour costs
2. Reimbursement that is not keeping pace with those costs
- Need for internal efficiencies and economies of scale to preserve viability
- Need for bargaining power and leverage to advocate for fair and reasonable fees
3. Pressure from large referral volume aggregators
- Shift to one stop shopping experience – less providers to manage; more geography covered; consistent approach/philosophy; easier care coordination; seamless customer experience
- Demand for individual and aggregated outcomes
- Demand for enhanced communication – dealing with single account manager at regular intervals rather than multiple clinicians whenever they have a spare moment
- Demand for innovative systems solutions, rather than just services
4. Limited access to resources and talent
- Limited access to management professionals, skilled at navigating marketplace conditions
- Limited access to skilled clinicians or training/education resources
- Limited access to capital and credit
- Limited access to technology advancements
5. Demographic Trends
- Health care in Canada is undergoing considerable change – due in part to population growth, an aging population, and technological advancement.
- The aging population is considered a secondary source of pressure on health system costs: the most important is the sector’s human resources, as the number of clinicians will decrease by 30%, half of this reduction due to the retirement of baby boomers.
- The baby boom generation will likely be successful in demanding additional funding for health care, or they will push to have their needs met by private mechanisms.
- Governments are being pressured to explore alternative options for future delivery of health care as worker shortages and consumer waitlists increase.
Full disclosure: after 20 years as an independent clinic owner, I chose the consolidation route and I’m thrilled with that decision, so I may have some degree of bias. Having said that, as a PPD business mentor, I’ve been on both sides of the fence. I have encouraged some members and discouraged others from pursuing the path of consolidation.
It’s a deeply personal decision and it’s not a fit for everyone. It depends on your goals, the nature of your practice, the culture of your team, and the conditions of the marketplace you work in.
What’s most interesting to me is the degree to which our attitude influences the outcome. Those who approach consolidation with curiosity – informed and open, realistic about the marketplace conditions, tend to be thoughtful in choosing their partners and construe it positively – “We’re joining forces and will be better together!” In my experience, those owners consider not just what they can get, but also what they can contribute, and typically thrive in an integrated environment.
Those who ascribe to the villain/victim mentality, who have developed pessimism and a fear focus, view any potential partners with suspicious skepticism and tend to view consolidation negatively – “We have no choice, so we’re giving up our autonomy and getting swallowed up.”
They may be fixated more on self-preservation and what they perceive they should get out of the deal instead of seeing the bigger picture opportunities. They may look for things to validate their negative view of the marketplace, or in some cases, project this onto the unfortunate partner that takes them on, not recognizing that it’s the marketplace, not the partner, that’s the issue.
Unless something significant shifts, that’s a recipe for disaster for everyone involved. On the flip side, potential partners who use fear and intimidation to pressure an owner into a sale may rightfully earn that villain label (in my opinion).
In addition to the attitude that you come in with, the difference between the two experiences depends on the alignment of vision, values and culture between the parties and the resources and relationships that each brings to the table. You don’t need to join a big corporation to achieve the benefits of consolidation; there can be all kinds of less formal and creative ways to address the marketplace drivers.
My advice: consider the drivers that affect you and the various options available so that you can make an informed decision about whom, if anyone, you want to join forces with. If most of those drivers don’t influence your business, your services are specialized and/or in high demand, and you aren’t dealing with large funder/aggregators, chances are that you will be successful as an independent entrepreneur and I applaud you!
Those of you dealing with more complex situations and grappling with the decision… just remember, at its core, consolidation is really about a relationship – all parties need to be invested in making it a positive one. It should be about combining resources to advance the strategic objectives of all parties in a way that displays integrity and feels like a partnership, not a WWF smackdown. Win-Win. If it’s not that… don’t do it.
Educate yourself about the options, ask lots of questions and make an informed choice based on opportunity as opposed to fear. As Walt Whitman said – be curious, not judgmental.
