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COVID and Consolidation with Providers

1/12/2021

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By Kenneth Kaufman

I have given a number of talks over the past few months, and despite the fact that all of those presentations have been delivered virtually, the question-and-answer sessions have remained interesting and robust. The most frequent question asked has been about possible consolidation of the provider space post-COVID.

Most of these questions start from the perspective that another round of significant consolidation is coming. That perspective seems to rest on two key assumptions:
  1. The financial and demand condition of hospital providers has been permanently damaged by the pandemic, and the most wounded of those providers must seek a partner; and
  2. Increased provider scale is essential to achieve the necessary resources not only to weather the pandemic, but also to make new and larger investments in critical capabilities such as digital care.
In fact, the answer to the post-COVID consolidation question is not yet entirely clear.

What is clear is that every hospital organization must have a well-held point of view about its own role in the next phase of healthcare mergers, acquisitions, divestitures, and partnerships.

That point of view will pivot around three significant strategic questions:
  1. Will your organization be a consolidator—that is, a system of care large enough to gather other large and smaller organizations into a single integrated entity with scale?​
  2. Will your organization be a seller—that is, an organization ready to become part of a larger entity that allows your hospital to obtain a significant increase in financial strength, care delivery capabilities, and geographic scale? Relative to this question, our data indicates that the average size of seller organizations has gotten larger in the hospital space over recent years. I believe there is a sense that, historically, partnerships have generally been between a very large entity and a much smaller entity. However, one possible outcome of COVID is that partnerships could develop between one large hospital entity and another even larger player. This could change the seller landscape in a profound way.
  3. Or will your organization stand pat, confident in your current level of resources to support your strategic goals and competitive wherewithal?
There are two things to think hard about in regard to post-COVID impacts, disruptions, and likely industry-wide consolidation:

First, COVID has catalyzed a major shift in economic and competitive dynamics. Few organizations of any kind can expect pre-COVID strategy to be unaffected. Hospital and health system executives need to carefully and thoroughly assess their organizations’ capabilities, their competitive environment, and their path forward.

Second, as Jim Collins notes, a most important corporate character trait is preparedness and readiness. There is no way to anticipate the pace of post-COVID change. Now is the time to prepare, to be ready, and to consider your organization’s options.
​
Later, in fact, could be too late.

Planning your virtual event? Get in touch with us at the Capitol City Speakers Bureau today to book your healthcare speaker!
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