On August 16, 2017, DuPage Medical Group announced a $1.45 billion transaction with private equity group Ares Management. DuPage, which serves the west and southwest suburbs of Chicago, is the largest independent medical group in Illinois. In late 2015, investment from private equity firm Summit helped DuPage add 211 providers, for a total of 800. According to CEO Mike Kasper, this new investment will help DuPage acquire additional physician practices, open new clinics, and “start to look outside metro Chicago in terms of growing the group, and putting together a regional and national plan.”
The DuPage Medical Group investment is big news, but just one example of the rapid flow of capital into organizations that are competing with hospitals and health systems for their lifeblood: patients and physicians.
In January of 2017, Optum, the patient care and analytics division of UnitedHealth Group, acquired Surgical Care Affiliates in a $2.3 billion transaction, adding 205 surgical facilities and 3,000 physicians. A year previously, Optum acquired MedExpress and its 141 urgent care clinics in 11 states. In May of 2017, Surgery Partners announced it would acquire National Surgical Healthcare for $760 million, creating a portfolio of 125 surgical facilities. In June of 2017, Warburg Pincus, a private equity firm, completed the acquisition of CityMD, an urgent care provider in the New York metro area, to help fund its expansion. In July of 2017, a private equity firm agreed to invest $1 billion in American Family Care, the largest operator of urgent care centers in the country, with the intent to more than double the company’s footprint of 170 clinics.
Inpatient utilization rates are declining, outpatient traffic is growing, and consumers are shouldering greater financial responsibility for their care. These factors have fueled the creation of diverse settings for convenient, low-cost services, including primary care, urgent care, routine surgery, and diagnostic imaging. The high volume of these services creates an opportunity not only to grow revenue, but more importantly to earn patient loyalty.
In general, hospitals and health systems are pursuing this opportunity less aggressively than well-funded non-traditional competitors that are developing new models for efficient low-intensity care and franchising those models on a regional and national basis. To effectively compete in this environment for patient loyalty and a finite number of physicians, hospital and health system executives should take three broad steps:
Survey your territory. Develop a deep understanding of your market dynamics. In addition to understanding the competing health systems, be sure to take inventory of physician groups, surgery center operators, urgent care operators, for-profit organizations, and health plan organizations that are partnering with providers to add covered lives. In all of these areas, study the trends and the possible medium-term and long-term state. This information is a crucial fact base for strategic planning.
Anticipate change: scenario planning. Executive teams and boards should educate themselves about the possible game theory scenarios in their market. This study will help them develop a mindset that anticipates the major, disruptive changes that may develop in their market. This mindset is a necessary foundation for organizational planning that fosters thinking that is attuned to a rapidly changing environment.
Develop short-term and long-term action plans. Based on an understanding of the market and the current nature of change, organizations should develop plans designed to sustain and grow their presence in the evolving outpatient market. A short-term plan should identify and mitigate immediate risks related to outpatient utilization, consumer loyalty, and physician resources. A longer term plan should determine a desired position and role for the organization in non-acute care and a path involving partnering, buying, or building to achieve the necessary capabilities.
Recent news about investments in outpatient care among non-traditional competitors should put hospitals and health systems on notice: The nature of healthcare today is generating aggressive competition for patients and physicians. The stakes are high. Remaining competitive will require a planning process that is as nimble and assertive as that of new competitors.