Life Sciences & Health Care M&A Update: Q4 2016, petri dish


Life Sciences & Health Care M&A update: Q4 2016

As physicians begin to shift to value-based care (VBC), scale will be a critical factor in strengthening providers’ bargaining position and helping to facilitate VBC program compliance¹,². This Life Sciences & Health Care M&A update provides Deloitte Corporate Finance LLC insights and market data analysis that shed light on M&A trends in the Life Sciences and Health Care industry.

Life Sciences & Health Care trends

The future of VBC depends significantly upon physicians, due to their integral role in healthcare delivery. However, physicians, concerned about the consequences of financial risk for things out of their control, are reluctant to participate, preferring status quo fee-for-service compensation. Despite their reluctance, physicians do believe the shift to VBC is inevitable and anticipate it will equal about 50 percent of their total compensation within the next ten years.

  • Professional practice platforms will enable the shift to VBC. To cope with the changing compensation environment, physicians will likely partner with health systems that choose to enable an equitable and collaborative approach to VBC compensation structures. Such partners will provide physician-centered strategies around the clinical and business resources, capabilities, and skills that physicians need for VBC success, including clinical support capabilities, technology investments, access to non-physician staff to coordinate care, and managerial expertise and business knowledge.
  • Scale will strengthen providers3 bargaining position. As managed care networks narrow and emphasize alternative payment methods, from a VBC private contracting perspective, physicians' collective bargaining position will benefit from scaled platforms. Market-dominant players can negotiate with payors from a position of strength, while smaller platforms are in danger of exclusion from narrow networks.
  • Scale will also facilitate VBC program compliance and the requisite IT investment. Complying with VBC regulatory mandates, some with reimbursement cuts for failure to comply, as well as with private agreements struck with commercial and government payors, will require providers make substantial IT investments. Such technologies are also necessary to support data collection efforts and outcome monitoring associated with VBC integrated delivery models, such as Accountable care organizations (ACOs) and medical homes, that link patient outcomes with provider reimbursement rates. To make these investments, providers will also benefit from scale.
  • Fundamentally, the shift from fee-for-service to VBC is about changing providers behavior3,4. Though most physicians conceptually endorse principles of VBC, such as quality and resource utilization measurement, they are reluctant to bear the financial risk of VBC payment models. In practice, changing physicians’ behavior will require a better understanding of physicians incentives, but also compensation structures that will change incentives and resources that will empower new modes of care delivery.

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1 “2016 Health Providers Industry Outlook,” Deloitte LLP. December 23, 2015.

2 "Practicing Value-Based Care: What Do Doctors Need?,” Deloitte University Press. October 20,2016.

3 “2016 Health Providers Industry Outlook,” Deloitte LLP. December 23, 2015.

4 “Practicing Value-Based Care: What Do Doctors Need?,” Deloitte University Press. October 20,2016.

5 CapitalIQ. January 16, 2017. Data as of December 31, 2016.

6 CapitalIQ. January 16, 2017. Data as of December 31, 2016.

7 Only deals with reported transaction size shown.

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