In 2018, the health care system has seen a record-breaking frenzy in mergers and acquisitions (M&A). Last year alone saw 115 major health care organization mergers and acquisitions, and 2018 is on track to exceed that number.
Horizontal consolidation, such as Advocate Health Care and Aurora Health Care (a client of my company), and vertical acquisitions, such as Cigna-Express Scripts, are all driving major change in the industry. Pair these moves with the pending changes at CVS stores following the Aetna acquisition, and you can see how dynamic the industry has become in a fight to be relevant, affordable and consumer-centric. Health care leadership teams and C-suite teams, like those I have managed in the past, have never before faced such pressure to improve productivity and patient care and, specifically for CFOs, increase market share while still controlling costs.
Historically, the image of a health care CFO was one focused on accounting, budgeting and overseeing financial operations. When mergers and acquisitions are happening across an overwhelming number of health care systems, this new frontier opens up both challenges and opportunities. In order to succeed, it is critical to understand the transformative effects of consolidation and what to look out for when making decisions that affect the whole organization’s future.
Even if you are not in health care, you may find some of these considerations helpful if you are a part of a massive enterprise experiencing growth by M&A activity.
Fight fragmentation: Rethink your tech stack.
While consolidation, in the long run, will be beneficial, it first means dealing with an abundance of new and extraneous technologies and platforms. Each organization brings, for example, its own electronic health records (EHR) system, its own claims management system, its own security software, etc. If you just consider how the CFO might have to examine the newly merged revenue cycle through a lens of two or more patient accounting systems, you can see the mounting challenge the CFO now faces. Now the CFO has to assess the cost-effectiveness of maintaining separate systems, consolidating them or creating a hybrid infrastructure.
The fix: A CFO’s true north is cost reduction, but now health care CFOs have to embrace the long-overdue digital revolution, which might mean 50 technology vendors across a single health system. A great CFO needs to work with their CIOs to reexamine the tech stack, keeping in mind how data can work toward a more complete financial picture. With everything else CFOs must consider during M&A integration, they should ensure technologies in place easily integrate with existing health care information systems. Interoperability is key, and with the right systems in place, CFOs can leverage technology to get the most comprehensive financial picture, better manage financial results and have that data result in the opportunity for better patient care.
Balance physician costs by saving elsewhere with technology.
Consolidation should lower physician costs, but research has found it has caused an 8% increase in costs over the past 20 years. When more doctors and medical experts work for the same hospital network, the dynamic around incentives and access changes. These organizations tend to charge higher prices than independent doctors, which results in increased physician costs. Even when hospitals buy smaller practices once owned by doctors, the physicians go from being owners to employees and demand pay increases. Hospitals now find themselves scrambling to cover the costs of keeping talent.
The fix: Find ways to cut costs elsewhere. Administrative work consumes about one-sixth of physicians’ working hours, and that leads to lower job satisfaction. CFOs and CIOs need to partner and prioritize new technology that can alleviate some of this administrative burden. Technology and predictive analytics that can automate manual patient chart input or billing processes can not only save time and resources but also allow staff to be redeployed to more meaningful activities that improve the patient experience. And, as data has shown, an improved patient experience can often translate directly into a quicker bill-pay time and, therefore, revenue.
Extend the patient experience to payments.
It’s not just the physician’s role that needs to be reconsidered but certainly the patient’s, and that should extend from their clinical experience to the costs they’ll incur. Technology that creates a transparent and retail-like patient experience will benefit the hospital as well. While investments to make a better customer experience could initially cost the CFO time and money, they would result in fewer revenue leaks, and these leaks will only get worse when more health care costs and paying responsibility shifts to the patient. Health care organizations already on average lose 3% of patient revenue due to denials. Patients are behaving more like consumers; if you’re going to be more responsible for what you pay, you want to better understand what you’re paying for.
The fix: Treat patients like consumers. A better front-end patient experience and leveraging automation help a patient have a clearer understanding of the costs associated with care and identify who is responsible to pay what and how collection on those payments occur. This also puts a long-term strategy into play for the hospital to gain a healthy set of predictive analytics to determine a patient’s propensity to pay. Together, this increases revenue and minimizes loss, while also making a patient more aware of the services they’re getting or should ask about.
Health care changes hold lessons for many industries.
My hope is that health care CFOs become more tech-focused to speed up health care’s digital transformation even beyond the financial side. There is no question that the industry needs it. But there are lessons here beyond health care: The dynamic of M&A activity and consumerization touches many highly regulated industries. Just take a look at Goldman Sachs acquiring fintech startup Clarity Money or Allstate acquiring PlumChoice. To be sure, these are smaller transactions than what we’ve seen in health care. But the question that CFOs have to answer will be the same: How do I use finance and technology to better serve all my stakeholders — especially the consumer?