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.
This newsletter is a periodic compilation of certain capital markets information. Information contained in this newsletter should not be construed as a recommendation to sell or a recommendation to buy any security. Any reference to or omission of any reference to any company in this newsletter shall not be construed as a recommendation to sell, buy or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. This newsletter is published solely for the general information of clients and friends of Deloitte Corporate Finance LLC. It does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Certain transactions, including those involving early stage companies, give rise to substantial risk and are not suitable for all investors. This newsletter is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known risks, uncertainties and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. We and our affiliates and related entities, partners, principals, directors, and employees, including persons involved in the preparation or issuance of this newsletter, may from time to time have “long” and “short” positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein. The companies mentioned in this newsletter may be: (i) investment banking clients of Deloitte Corporate Finance LLC; or (ii) clients of Deloitte Financial Advisory Services LLP and its related entities. The decision to include any company for mention or discussion in this newsletter is wholly unrelated to any audit or other services that Deloitte Corporate Finance LLC may provide or to any audit services or any services that any of its affiliates or related entities may provide to such company. No part of this newsletter may be copied or duplicated in any form by any means, or redistributed without the prior written consent of Deloitte Corporate Finance LLC.
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.