Mergers and acquisitions (M&A) are no longer the leading growth strategy for health systems, according to Modern Healthcare's latest CEO Power Panel.
The survey, published in Modern Healthcare Saturday, polled 24 health system CEOs. Modern Healthcare allowed respondents to select more than one answer for questions.
How health systems plan to grow
In this year's survey, 12.5% of CEOs said M&A best describes their growth strategy, that's down by about half from the 25.8% of CEOs who said M&A best describes their growth strategy in 2018.
Intermountain Healthcare CEO Marc Harrison said that for many M&A deals, health systems haven't focused on achieving the cost savings and efficiencies they'd promised to deliver. "I think very few people have actually gotten any value out of it," Harrison said of M&A.
Among the 12.5% of CEOs who said they're planning M&A activity this year:
- 50% said they're planning a joint partnership;
- 45.8% said they're planning a traditional merger or acquisition; and
- 16.7% of responses were classified as "other."
According to Modern Healthcare, about 4% of CEOs pursing M&A this year are planning a vertical merger.
Instead of M&A, a large share of CEOs—41.7%—said their business growth strategy for 2019 was to update current business lines, while 25% said innovation would be a key part of their strategy. About one-third of responses were classified as "other."
Howard Kern, CEO of Sentara Healthcare, said he ultimately sees Sentara partnering with big technology companies like Google or Apple to update current business lines. "If you look at banking, retail, they're way ahead of health care," Kerns said. "It's undeniable that health care is going to end up there."
CEOs less confident in financial performance this year
Another big finding in this year's Power Panel survey is that many CEOs aren't as confident in their financial performance this year as they were last year, according to Modern Healthcare.
When Modern Healthcare asked CEOs about their greatest challenges this year, 70.8% listed rising expenses. Sixty-two percent CEOs in a follow-up question said they expect drug-related expenses to grow the fastest, while 25% said staffing and labor costs, and12.5% listed a response classified as "other."
When Modern Healthcare asked CEOs to rate where they're trying to cut costs on a one-to-five scale where five is the most important, on average:
- Executive department ranked 4.46.
- Back office/administrative ranked 2.88; and
- Supply chain and pharmaceutical tied at 2.63; and
- Labor ranked 2.42.
Meanwhile, health system CEOs are excited about the possibility that the federal government will dial back anti-kickback measures, Modern Healthcare reports. About two-thirds of respondents said changes to this regulation would help them financially, namely in light of the shift toward value-based care.
Cathy Jacobson, CEO of Froedtert Health & the Medical College of Wisconsin, said, "Anti-kickback was written so people aren't basically buying referrals, paying physicians for referrals. … But that's not the thing we're trying to do. We're trying to ask physicians to change, and in some ways, that actually might hinder their fee-for-service income. The only way we can do that is by putting them into value-based arrangements and being able to share some of those gains with them" (Bannow, Modern Healthcare, 2/23).
Why you shouldn't believe the hype about hospital mergers and acquisitions
The past few years of mergers and acquisitions (M&A) have seemingly created a new dichotomy for hospital and health system leaders: Either merge or risk losing market relevance.
But is M&A really an answer to today's health care challenges? Here are three ways the evidence often doesn't live up to the hype.