Creating Competition Through M&A in the Healthcare Field
Linda Fleming, partner with the law firm Carlton Fields confirms that in fact, the healthcare market is very competitive. According to Fleming, as more players enter the market, providers need to distinguish themselves to retain current patients and acquire new ones. She explains this is also important when contracting with managed care companies. Providers in the field need a critical mass to get their attention.
“Establishing sustainable competitive advantage and differentiation for your business is at least as important in healthcare as it would be in any other industry. This is due in part to the fact that most healthcare service lines have multiple scaled competitors in each market and patients are presented with a greater number of options and alternatives. Ensuring that your patients recognize and value your distinct competitive advantage is becoming more critical as patients transform themselves into educated healthcare consumers with much higher expectations for service and transparency. Creating competitive advantage can both support your growth and enable you to make longer term investments with confidence,” Todd Latz, CEO of GoHealth Urgent Care says.
Fleming adds that she believes that having a competitive advantage in the industry is not only beneficial for the physician owners, but for the patients visiting centers as well.
“If the advantage is having multiple locations, then these companies offer increased convenience to their patients. The competitive advantage might be enhanced Electronic Health Records and participation is an health exchange, thereby allowing all of the patient’s providers to access the patient’s up-to-date medical history. Or it could be offering a full line of services, so it makes it easy for your patients to fulfill all of their health care needs with your company and its affiliates,” Fleming says.
“At some point, size could be a disadvantage, such as when antitrust prohibitions come into play. But size does matter, and for the most part, the more dominant you are, the better opportunities you have.”
Latz does not believe there is a dominant player in urgent care today. However, when discussing the topic of it being possible to be “too large” in a market, he says that is theoretically possible.
“It really depends on your operating model, competitive advantage and whether the additional locations are accretive and sustainable,” Latz says.
On the topic of patients benefiting from competition, Latz says there is no question that patients can and should benefit from this competitive advantage.
“Whether it is a unique partnership model that provides greater access to the entire healthcare continuum and a higher level of clinical quality, technical innovation that redefines convenience and access, or a patient-first focus that delivers a seamless and restorative experience – competitive advantage and differentiation must present clear value to patients and deliver on (or exceed) their expectations,” Latz says.
Latz adds that there are a number of reasons to consider an acquisition of an existing center, including:
- Faster new market entry
- Accelerating growth by expanding your existing network or increasing market share
- Adding clinical or operational talent
- Obtaining more mature operating assets and established volume
- Tapping into new partnership and collaborative opportunities
When approaching a transaction opportunity, Fleming says the strategic plans that a company may have for the deal is critical to offer multiple entry points.
“By adding new locations, the company is likely to expand its patient base, which in turn gives it more leverage when negotiating managed care contracts. It may also provide the opportunity to expand service lines or enhance the existing company’s reputation,” Fleming says.
On the strategic point, Latz says would-be buyers may be looking to enter a new market, increase their presence and scale in an existing market, add a new service line or simply, take advantage of synergies or enhance their presence and relevance to payors. An acquiror’s strategic plans would be dictated by what they are looking to achieve through the transaction.
When asked on when a good time to expand is in the market, Latz shares his thoughts.
“I believe you simply have to be opportunistic, as perfectly timing your growth can be tricky. De novo growth is certainly easier to manage from a timing perspective, but growth through acquisition is much harder to manage, since the market may present a unique opportunity at a different time than you might have hoped for or projected. You should also consider the cultural implications and amount of work it may take to transform or align an acquired business with your own unique model,” Latz says.
Fleming says that in her belief, growth for growth’s sake is rarely advisable. Rather it should be part of a comprehensive strategic plan and should be done when the Company has the necessary resources to do so.
“This would include management and financial resources. However, sometimes opportunities present themselves. If the opportunity fits into your strategic plan, you might need to react immediately, even if you planned to do it a year or two later,” Fleming says.
Another way that M&A can create competition directly through the sales process is through an auction.
Lisa Taylor, partner with Webster, Wyciskala, and Taylor says that she is certainly seeing an increased trend in auctions throughout the healthcare industry that are increasing competition via M&A.
“If you would have asked me about an auction a year ago, I would have thought of an auction in a completely different context, like selling art work. What I am really seeing is that they are increasingly being used where a substantial portion of the value of the selling organization is franchised to provide services; particularly in areas where for regulatory reasons, you can’t get into the market anymore,” Taylor says.
“That’s really the big thing. CMS has put into place a number of moritoriums for a number of services like durable medical equipment, home health, and other services in various places across the country. There are increasingly tight barriers to entry for services and to facilities that may not previously have had barriers to entry.
The only access to the market is by acquiring an existing organization, or in some cases, approval for an organization that has not been developed yet. That license is what is really most valuable. The selling organization wants to maximize the value for the current owners so an auction makes a lot of sense in terms of trying to maximize that value. In some cases it is a good way to be able to entertain perspective bidders and to try and get offers, competition, and get purchasers to try to turn around a deal pretty quickly.”
If you have an interest in learning more about the subject matter covered in this article, the M&A process or desire to discuss your current situation, please contact Blayne Rush, Investment Banker at 469-385-7792 or Blayne@AmbulatoryAlliances.com.