There are a lot of forces at work fueling mergers and acquisitions in the healthcare industry. As revenue continues to shrink and costs continue to increase, many practices are contemplating how to scale to survive. Anesthesia practices are no exception, but they face a uniquely complex environment. That’s why it’s especially important to understand where anesthesia-specific merger and acquisition activity stands today.
Harvard Business Review has described merger and acquisition (M&A) activity in four distinct stages:
- Stage I: opening
- Stage II: scale
- Stage III: focus
- Stage IV: balance and alliance
Payers are a good example of a healthcare segment that’s already at Stage IV. This is evident as we start to see paradigm shifts of such magnitude that they require government approval. (Think, for example, of the pending Aetna/CVS merger that promises to blend the operations of a payer and a retail pharmacy.)
On the other hand, vital specialties that make up a smaller part of the overall healthcare spend — such as anesthesia, emergency medicine and radiology — remain in an earlier part of the so-called “consolidation curve.” Many experts feel anesthesia is in late Stage II; others believe we’re already in Stage III. Regardless the exact stage, what you need to know is that anesthesia M&A will start to look different in the coming months.
As anesthesia consolidation reaches a “maturing” phase, the number of M&A transactions is expected to slow. We don’t think that means M&A is gone from the anesthesia landscape, though. Rather, we’re likely to see more large-scale, multi-specialty acquisitions – groups like Envision or MEDNAX, for example — that seek to diversify by adding more specialties to their groups. In other words, large groups getting larger and smaller groups becoming scarcer.
Why the big picture matters
Awareness of the overall landscape is vital, because practices that choose to try to maintain the status quo aren’t likely to survive. The truth is that anesthesia practices simply can’t afford to stick their heads in the sand and do nothing. Each one must figure out where it best fits within the maturing landscape.
There isn’t a one-size-fits-all market strategy for anesthesia, either. Diverse factors such as geography or market, internal group dynamics and age ranges, leadership, and motivation all impact the direction a practice might want to take. Although there are many options to consider, two strategies can help practices illuminate their value:
- Create value through strong leadership; and
- Grow through the acquisition of like-minded groups.
Strategy 1: Strengthen leadership
Rosalynn Carter, wife of former U.S. president Jimmy Carter, once said: “A leader takes people where they want to go. A great leader takes people where they don’t want to go, but ought to be.”
That’s just as true in healthcare as in politics. In every anesthesia practice, someone needs to challenge the status quo to move the practice forward. It can be an internal leader or leadership group, or it can be an external partner or someone in an advisory role.
Practices should conduct a careful self-evaluation, looking to identify who is best at advocating new ideas. The most effective leadership may even blend the talents of internal resources with those of external advisors. Everyone has strengths and weaknesses; good leaders seek advice to complement the areas where they and their team are not as strong.
Strategy 2: Acquire like-minded groups
A newer business model gaining popularity around the country involves anesthesia practices that decide to remain independent but achieve scale to gain better contract rates and market power. They silo their revenue and expenses and merge with other groups. In one such example, an anesthesia group grew within four years from 20 providers in two facilities and $25 million in revenue to 80+ providers and $100 million revenue.
While this approach to growth can be successful, it does require the right leadership and practice governance structure. In fact, many growth opportunities can benefit from using outside resources to help determine an appropriate structure for the new corporate entity. Today, more than ever, practices need effective decision-makers to be competitive in the marketplace. That requires a leadership structure that can make decisions that are timely enough to compete with larger groups and support the joint strategic direction of the practice.
Take a holistic view
Healthcare mergers and acquisitions are changing the entire healthcare paradigm, affecting both care delivery and outcomes. It’s not uncommon for anesthesia practice leaders to find strangers sitting in a hospital’s administrative offices. That means even the best, longest-standing relationships between a hospital and an anesthesia practice could be at risk after a hospital consolidation.
As a result, practices must have a holistic view of the market and have a clear understanding of their value. Take a careful look at the market landscape. Leverage industry conferences rich with insights into trends and strategies. Seek partners and advisors who know the nuances of the anesthesia market.
There are so many options for future growth but ignoring market shifts in healthcare is not one of them.
 Harvard Business Review, “The Consolidation Curve,” December 2002.