While 2017 saw significant healthcare merger, acquisition and affiliation activity, with 115 deals announced, 2018 surpassed it: not only in terms of numbers, but also in scope. Indeed, as of the end of Q3 nearly 840 healthcare mergers and acquisitions were announced, including several "mega deals" like CVS and Aetna.
These game-changing arrangements are having a profound impact on the healthcare landscape, with newly joined players helping redefine the concept of "business as usual." And although streamlining patients' healthcare experience is the desired end result, high-profit margins, care integration and increased focus on cost-efficiency are driving much of this increased M&A and affiliation activity. Demand for value-based care — where patients, employers and insurers pay for care based on outcomes received — is also on the rise, as are companies bringing portions of their healthcare in-house to better care for their employees through employer-based clinics, wellness programs, and tech-enabled self-monitoring and care plans.
To create a more harmonious system with less waste and better patient care, blended arrangements between traditional healthcare players and those not historically involved in healthcare (i.e., so-called disrupters) are becoming appealing options to help fuel change by healthcare organizations. As a result, we're increasingly seeing these collaborative transformations disrupt the healthcare industry in ways not previously experienced. Beyond M&A and affiliations, innovative — and sometimes unexpected — partnerships are also emerging in the form of joint ventures and strategic alliances, with the mission of tackling some of healthcare's toughest challenges. Through methods ranging from telemedicine and gene therapy to integrated care to tech-enabled care methodologies, companies are coming together to provide improved patient experiences for the communities they serve, while fostering healthier bottom lines.
While the potential for new healthcare collaborations is exciting and holds great promise, organizations considering embarking on these collaborative transformations will need to consider how best to navigate the existing legal and regulatory landscape. In doing so, there are a few things to keep in mind to ensure success:
1. Risks and regulations vary.Organizations outside of and across the healthcare industry have different experiences with risk and regulation. In navigating the legal requirements of partnerships, strategic alliances or joint ventures will need to identify and evaluate risks and regulations not encountered previously. For organizations seeking international collaborations, there is the added challenge of navigating the unique and varying regulations of a potential partner's country, where a misstep could potentially have catastrophic consequences. And with the recent concerns about healthcare data security breaches, this is a further area for organizations to consider when evaluating potential partners. Ultimately, considering the regulatory nuances inherent to healthcare partnerships, it's necessary to approach business planning, deal structuring and negotiating with compliance and risk tolerance in mind.
2. Culture change must be managed. For true success, organizations should take a step back to consider how their own culture impacts business operations. We see cultural differences among specific types of healthcare organizations, but the cultural differences between traditional healthcare and technology firms are often even more dramatic. That is why there needs to be a willingness to appreciatedifferences. Doing so can help parties avoid conflict and can also lead to opportunities and benefits neither may have expected.
3. Expect the unexpected. As the healthcare industry transforms, we will see more atypical partnerships form. Thriving amid industry-shaking change requires a deep and thoughtful understanding of one's business and the landscape it operates in. This means keeping an ear to the ground to provide a steady hand and valuable insight into the ways disruption could impact operations and using that knowledge to innovate and drive the business forward.
4. Learn from those with experience.Evaluating risks in health collaborations, where each party comes to the table with different starting points, goals, risk tolerance and resources, can make an already complex transaction even more so. Mixing corporate and operational cultures to implement lasting change adds a further layer of complexity, one not always easily solved by the parties involved. Utilizing an experienced team — whether they are lawyers, consultants or facilitators — will be helpful with weighing, measuring, and guiding the decision-making.
While most of the new high-profile tie-ups have been lauded, there have certainly been a number of false starts and failures as well. Keeping these four guideposts in mind may help leaders steer clear of potential pitfalls and chart a course for success.