6 Reasons Why 2018 Will Be The Year Of Healthcare Consolidation

By the Managing Directors of VERTESS

Volume 4 Issue 26, December 19, 2017 

We have entered an era of unprecedented consolidation of healthcare organizations. Whether nonprofit or for profit, large of small, DME or I/DD, consolidation is inescapable and on the mind of every healthcare business owner or executive in America. The continuing unknowns of Trumpcare, the unraveling of Obamacare and many other factors are obvious contributors. But the following reasons for the acceleration of consolidation are remarkable in the view of our team:

More easy targets – VERTESS Managing Director, Eric Hymes, predicts that the DME competitive bidding program will be replaced by new “cost savings” legislation. “We will see deeply discounted fee schedules in the coming year and more, small DME operators will exit or seek investors to survive. Tangible products across the healthcare spectrum will continue to be easy targets.”

Onward managed care! – In the Medicaid world, I/DD long-term care is increasingly becoming a focus of MCOs and state governments trying to reduce their fiscal problems. As Joshua Boynton, Managing Director, notes, “MCOs will have a very significant role in 2018 and beyond as states look to contain their Medicaid costs, especially in the $100 billion I/DD budget. It’s a highly fragmented marketplace and we’ll see increasing mergers of nonprofit organizations as well as consolidating transactions by for profit providers across the US.”

Shrinking provider networks – “The counter trend to the rapid expansion of substance use disorder treatment programs will be the decreasing opportunity for out-of-network reimbursement by commercial insurers,” suggests VERTESS Founder, Tom Schramski. “We’re going to see much more consolidation as this occurs, along with MCOs relying on fewer and larger nonprofits to serve the Medicaid populations despite increased funding for our opioid epidemic.”

Superabundance of capital – With the rise of the stock market and eager investors we have entered the time of the “superabundance of capital” in many healthcare verticals. “Whether pharmacies, DMEs, or home care/hospice, investors have so much ‘dry powder’ that they are looking for the biggest deals possible in 2018,” indicates Bradley Smith, VERTESS Managing Director/Partner. “They’re becoming more sophisticated in their roll-up strategies as they create larger platforms than ever before.”

Giving is not enough – Given the increasing pressure on Medicaid reimbursement and growth of MCOs, nonprofit healthcare organizations are looking to merge, or even be absorbed, by other healthcare and human service nonprofits. “The consolidation of nonprofit organizations across our country will likely astound all of us when we look back on the next 12 months,” says Tom Schramski. “There are more human service nonprofits fighting for fewer donations and the combination with potential block grants is overwhelming for organizations that have existed for over a half century, in some cases.”

Erasing long-held assumptions – “Will we purchase our next Aetna health insurance policy at CVS? Will baby boomers have their audiological exam and buy their hearing aids at Walmart?” asks VERTESS Managing Director, Hilsman Knight. “We are entering a period where the distinctions that we usually associate with the healthcare marketplace are disappearing. This upheaval is creating new opportunities for growth and consolidation by healthcare providers of all sizes as we head into 2018.”

As disruptive innovation continues in healthcare, consolidation is a natural outcome in many areas. Some companies and their owners will exit, while others will seize the opportunity to grow through investment, merger or acquisition.

Is bigger always better? No, but the race for consolidation will be on in 2018.

If you would like to personally discuss this article, the value of your company, or how to get the best price when you sell it, you can reach Tom directly at tschramski@vertess.com or 520.975.5347.