CEO Power Panel: M&A no longer health systems’ top growth strategy

By Tara Bannow  | February 23, 2019

Members of Modern Healthcare’s CEO Power Panel say mergers and acquisitions may be losing their allure for health system leaders. Only three of the 24 health system CEOs who took the survey said M&A will be their primary growth strategy in 2019. Ben Isgur, the leader of PwC’s Health Research Institute, said big mergers can be followed by years of integration and inward focus, which could explain why systems might keep a low profile this year. The survey results also show finances may slide in 2019, but CEOs insist it’s happening for good reason.

Growth strategy: M&A losing its appeal

Survey responses indicate less of an appetite for mergers and acquisitions this year than in 2018. In 2019, 12.5% of CEOs said M&A best describes their growth strategy, down from 25.8% in 2018. 

“Success for the future of healthcare organizations is not so much getting big for big’s sake,” said Howard Kern, CEO of Sentara Healthcare. “I think that’s what a lot of us are realizing. We’ve always had that view, frankly.”

In many M&A deals, systems haven’t focused enough on actually achieving the promised cost savings and efficiencies, said Intermountain Healthcare CEO Dr. Marc Harrison. “I think very few people have actually gotten any value out of it,” he said. 

San Diego-based Scripps Health is among the 42% of respondents that said their priority will be updating current business lines, although CEO Chris Van Gorder said the system would also welcome joint partnerships that can bring both economic savings and greater expertise. Scripps is already involved in a number of such deals. 

Norfolk, Va.-based Sentara also plans to update current business lines by firming up its acute-care operations and making sure it has the right digital consumer technology. 

Ultimately, Kern envisions the system partnering to develop that platform further and partnering with Google or Apple. “If you look at banking, retail, they’re way ahead of healthcare,” he said. “It’s undeniable that healthcare is going to end up there.” 

One-quarter of CEOs said innovation will define their 2019 growth strategy. Among them is New Orleans-based Ochsner Health System, whose CEO, Warner Thomas, said innovation means using digital tools to connect more deeply with its existing patients and attract new ones. That includes using its online patient portal to make appointments, send messages and use telemedicine. The not-for-profit system is rolling out a suite of new digital medicine capabilities, such as a hypertension program that lets providers monitor patients’ blood pressure, exercise, diet and medication adherence remotely. 

Among CEOs pursuing M&A this year, only about 4% said they’re planning a vertical merger. PwC’s Isgur said that’s likely because there are only so many prospects out there for such deals. It’s not the kind of deal systems do repeatedly, he said.

General outlook: Finances may suffer, but for good reasons

CEOs aren’t quite as confident in the performance of their systems this year compared with last. 

Froedtert Health & the Medical College of Wisconsin in Milwaukee expects to perform worse this year because it hit a peak in 2018. The system saw 5% growth in hospital discharges in a market where utilization has been flat overall, CEO Cathy Jacobson said. Some of its hospitals and ambulatory surgery centers are operating beyond their capacity. Froedtert is adding inpatient beds to keep up, but that will come at a cost.

“We anticipate in 2019 that we’ll recover from that, but we won’t be able to operate at the peak that we’re operating at right now,” Jacobson said. 


Chris J. Stewart

Chris currently serves as President and CEO of Surgio Health. Chris has close to 20 years of healthcare management experience, with an infinity to improve healthcare delivery through the development and implementation of innovative solutions that result in improved efficiencies, reduction of unnecessary financial & clinical variation, and help achieve better patient outcomes. Previously, Chris was assistant vice president and business unit leader for HPG/HCA. He has presented at numerous healthcare forums on topics that include disruptive innovation, physician engagement, shifting reimbursement models, cost per clinical episode and the future of supply chain delivery.

Related Articles

Back to top button