December’s news about planned hospital consolidations in Atlanta and Chicago is a reminder of how local healthcare ecosystems are changing in different ways and at different paces. In Atlanta, the year’s steady drumbeat of hospital consolidation news culminated in WellStar Health System’s announced acquisition of Tenet Healthcare’s five regional hospitals. At the same time, healthcare players in Chicago were reeling from the news that the FTC plans to block the merger of Advocate Health Care and NorthShore University HealthSystem, which would have formed one of the nation’s largest hospital systems.
Life sciences companies are faced with responding to this M&A activity as their customer bases continue to evolve. As the pace and scale of these events vary greatly between different geographies, manufacturers will require flexible strategies that can be adapted to the most influential stakeholders within each locality.
The consolidation of Atlanta’s traditionally fragmented hospital market has drastically altered the competitive landscape. In February 2015, WellStar, a nonprofit health system, and the academic system Emory Healthcare announced that they were discussing a unified system. Although they failed to reach a deal, WellStar still managed to more than double the number of hospitals in its system by year’s end. In addition to absorbing Tenet’s five Atlanta hospitals, WellStar acquired West Georgia Health.
Piedmont Healthcare, another influential nonprofit integrated delivery network, expanded to seven facilities. Meanwhile, Emory Healthcare’s new CEO is still seeking to expand the academic medical center. The deal-making among Atlanta’s health systems has been motivated, at least in part, by the need to counterbalance the influence of Anthem, the region’s largest insurer.
In Chicago, by contrast, the mega-merger between Advocate and NorthShore appears to be doomed by the FTC’s announced opposition, preventing the formation of a combined system with approximately $7 billion in revenue. While the FTC’s decision will be a setback for these systems, both will likely continue to expand their influence in Chicago. For example, Advocate recently announced a partnership with Walgreens to operate retail clinics in the chain’s Chicago-area stores.
Despite the headlines, the FTC’s narrow justification for opposing this deal is unlikely to generally slow the pace of M&A activity in the hospital market, with approximately 90 hospital mergers occurring every year over the past six years. However, the largest regional hospital systems, such as Advocate in Chicago and Partners HealthCare in Boston, will likely face increased opposition to their acquisition of competing hospitals within their current geographic footprints. These systems can be expected to look for innovative ways to design deals that expand their size, such as by partnering with clinically integrated networks.
December’s announcements mean that pharmaceutical and medical technology field teams in Atlanta and Chicago returned to quite different ecosystems in 2016. Although the provider landscape in Atlanta is clearer, teams now are finding that they urgently need to adapt their local tactics to more effectively influence institutional decision makers in growing, integrated provider systems. In contrast, teams in Chicago face increased uncertainty as they wait to see how the two major health systems will respond to the FTC’s decision, both strategically and in court.
Market events like these illustrate the considerable geographic heterogeneity in the U.S. healthcare market and the varying degrees of local consolidation and coordination. The net direction of change is clear, as the trend toward bundled and value-based payments is motivating provider systems to seek greater scale in local markets and become more holistically involved in patient care. However, the pace, size and success of these consolidations vary greatly among localities.
To adapt successfully, life sciences companies need to carefully consider a local ecosystem’s evolution and develop new engagement tactics that address the priorities and decision-making processes of the most influential players. As hospital mergers continue in 2016, commercial leaders and their teams in each locality will need to stay flexible to respond to the uncertainty surrounding future consolidation and regulatory approval. While the successful consolidation of large hospital systems won’t happen overnight, life sciences companies should be thinking about how the trend toward consolidation will affect their commercial model in each local ecosystem, and should begin preparing for the future.