Healthcare Mergers Signal Changing Times

Partnerships and acquisitions aim to break down the walls separating the “silos” of healthcare and seniors housing.

By Jeff Shaw

The way healthcare is delivered to patients is changing. A combination of factors is pushing this shift:

• As the cost of healthcare, medicine and labor continues to rise, providers are looking for ways to increase efficiencies and provide care at a lower price. 

• Technology offers ways to provide care in new ways, such as telemedicine video chats with doctors and electronic health records.

• Driven in large part by the Affordable Care Act, the healthcare system is starting to emphasize quality of care metrics over services provided. In other words, for providers to get referrals and stay profitable, it will no longer be about fee-for-service charges, but rather how healthy they keep their patients compared with the competition. 

As a result of these changes, some companies are attempting to lead the charge to reach out between healthcare “silos.” 

Currently, the hospital, doctor, skilled nursing facility, assisted living community, home health agency and pharmacist are separate entities, and in some cases even compete against one another. 

In the near future, not only will these entities need to cooperate with each other, but many are breaking down those walls through direct mergers and partnerships, according to Bob Kramer, founder and strategic advisor for the National Investment Center for Seniors Housing & Care (NIC).

“In the future, when it comes to healthcare for elders, particularly frail elders, rather than sending them to the hospital or doctor’s office, healthcare will come to where they live,” says Kramer. “Consumers will demand it, technology will enable it, and payors — especially managed care payors, those holding the risk for spend — will promote it and pay for it. They believe it will produce meaningful cost of care dollars for them.”

Giants expand services

Several large mergers are showing the industry’s desire for an easier, more streamlined healthcare delivery system.

The U.S. Department of Justice recently approved the $69 billion acquisition of health insurance company Aetna (NYSE: AET) by pharmacy and convenience store chain CVS Health (NYSE: CVS). The goal of the merger is quite clear: to make healthcare more convenient and available to patients, particularly preventive care, to reduce hospitalizations and costs to the insurer.

“Our focus will be at the local and community level, taking advantage of our thousands of locations and touchpoints throughout the country to intervene with consumers to help predict and prevent potential health problems before they occur,” said Larry J. Merlo, president and CEO of CVS Health, at the time of the DOJ’s approval. “Together, we will help address the challenges our healthcare system is facing, and we’ll be able to offer better care and convenience at a lower cost for patients and payors.”

The move is even seen by many as a pre-emptive strike against Amazon’s attempts to enter the healthcare and pharmacy space (Amazon bought online pharmacy PillPack this year). CVS and Aetna expect to complete their merger before the end of this year.

Meanwhile, in a move with a more direct impact on seniors housing, Midwestern regional health system giant Sanford Health has agreed to acquire The Evangelical Lutheran Good Samaritan Society, a huge nonprofit seniors housing operator. The two companies, both based in Sioux Falls, South Dakota, would create a $6 billion entity with 44 hospitals, 300 clinics and more than 200 seniors housing communities totaling over 17,000 units. The deal is slated for completion by Nov. 1, 2018.

“This forward-thinking plan will become a national model to serve communities with exceptional care and value through the full spectrum of one’s life,” predicted Kelby Krabbenhoft, president and CEO of Sanford.

In yet another blockbuster deal this year, giant seniors housing REIT Welltower and Midwestern nonprofit health system ProMedica joined forces to purchase Quality Care Properties (QCP). The purchase includes all assets of HCR ManorCare, QCP’s main tenant that was going through bankruptcy proceedings. The joint-venture buyers acquired the seniors housing portfolio, which totals 320 properties, for approximately $4.4 billion.

Other companies are going the partnership route. For example, Maplewood Senior Living, a Connecticut-based operator of 16 communities in the Northeast, is teaming up with Norwalk Hospital in Connecticut to build a $100 million hybrid facility that will include assisted living, medical offices, a health center and a fitness center.

In short: the world of healthcare is flattening.

Brace for more change

Kramer emphasizes that seniors housing is instrumental to this shift in care delivery. 

“On any day we’re home to 2.5 million to 3 million individuals,” says Kramer. “We can influence key things like diet, exercise routine, medication, and ultimately providing — if we’re doing our job well — social connection and engagement, which we now know is critical for health outcomes.”

Last year, NIC announced it was entering into a partnership with software system PointRight to measure re-hospitalization rates and other quality-of-care metrics. This data could be crucial for tracking the success of operations, which will be key to earning referrals and residents in the changing healthcare system.

Referral systems that once relied on close relationships (“remembering the hospital discharge person’s birthday,” jokes Kramer) will be based on hard data in the future. If seniors housing communities can’t get hospitalization rates under control, hospitals will stop referring their patients to those communities.

“Are the frail, high-need, at-risk individuals at your community frequent fliers at the ER? If so, you may stop getting referrals, either from the hospital or from the managed care payor, who is going to exert more control through incentives,” says Kramer. Those incentives could include better insurance coverage for patients who choose certain communities, for example. 

“The focus on value for the payor and consumer, rather than just value for the health system or doctor, is leading to partnerships like we’ve never seen before. Vertical integration is becoming common, even between companies that were seen as competitors or irrelevant to each other,” says Kramer.

All this change has, in essence, forced hospitals and seniors housing providers to take each other more seriously, concludes Kramer.

“Post-acute and senior care providers are no longer at the kids’ table. They’re becoming more important. Some of these integrations, mergers and acquisitions demonstrate that.”