Finance Roundup—Revenue and profit drive healthcare M&A activity; Mary Meeker’s annual report focuses on cost

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Margins were the most important factor for both financial and strategic acquirers, according to a new survey. (iStockPhoto)

Survey: Revenue and profit growth most important M&A benchmark

With 579 deals in 2017, healthcare companies are looking for acquisition targets that can provide value both financially and strategically.  

According to a survey by West Monroe Partners, nearly one-third of respondents said attractive margins were the most important factor in future healthcare targets. Margins were the most important factor for both financial and strategic acquirers.

Additionally, 41% said increasing revenue and profit growth is the most important operational benchmark to their organization’s M&A strategy. The second most popular benchmark, saving on compliance costs, was identified by just 18% of respondents.

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At the same time, a quarter of respondents said there was a shortage of attractive targets. Instead, 79% of respondents said they would seek out joint ventures and alliances over the next 12 to 18 months. (Survey)

Mary Meeker: Healthcare consumerization and data could drive down costs

This year’s “Internet Trends” report by Kleiner Perkins Partners venture capitalist Mary Meeker included a short section on healthcare, specifically the rising costs for consumers that could drive industry changes.

Pointing to rising premiums and annual deductibles, Meeker said consumers are becoming acutely aware of what they are paying for in the healthcare industry. As a result, patients are beginning to look for better experiences, digital engagement and on-demand access to care. Those factors provide a ripe opportunity for digital health companies that are focusing on data and technology to simplify the healthcare experience and ultimately lower costs. (Report [PDF])

Improving incentives can help hospitals cut losses on physician groups

Hospital-owned physician groups are losing money at an unprecedented rate and bringing down hospital earnings, according to a trio of consultants with Navigant Consulting.

That requires health systems to “rethink their strategy for their physician enterprises,” they wrote in Harvard Business Review.

Although health systems have been gobbling up physician practices for the last several years, a nebulous strategic rationale can quickly become a financial nightmare. The authors point to one health system that shifted between four different strategies over an eight-year period, from increasing market share to bailing out loyal independent physicians.

“By the time it was done, it was the proud owner of a 700-plus physician group and losses of more than $100 million per year,” they wrote.

Instead, the authors say health systems need to revamp compensation and incentives to match clear strategic goals and align with the broader industry shift to value. Additionally, renegotiating contracts with insurers and motivating contracted employees are key to stemming the losses associated with physician groups. (Harvard Business Review)

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