Just What the Doctor Ordered?

The healthcare sector has been on a torrid consolidation pace since the pandemic. But will the billion-dollar deals benefit the majority of patients?

Patients “see” doctors on Zoom calls. Amazon is offering concierge health services at some offices. And more people are learning how to do a range of health checks at home.

If any industry was transformed by the pandemic, it might be the healthcare sector. But behind all these changes were a barrage of multibillion dollar deals, centered around pharmaceutical, biotech and hospital systems, that are continuing at a torrid pace. Data shows there were a remarkable 1,112 healthcare transactions announced during the first half of 2022. That’s 25% more than the deals announced during the same period in 2020, 47% above those in 2019, and up 52% over 2018. At this pace, analysts believe the record set in 2021 will be surpassed.

Katie Bell, global account lead for the healthcare sector at Korn Ferry, says the dealmaking is being driven by the need to connect with patients through new channels with new services. “Patients are becoming more comfortable with alternative care models,” she says, pointing to the increasing popularity of telehealth, home visits, and concierge services, where consumers pay an annual or monthly subscription fee for conveniences like same-day appointments and doctor access 24 hours a day, seven days a week. The more patients use these services, Bell says, the less they are going to doctors’ offices or staying in hospitals, and that directly impacts revenue and profitability. “The care-delivery model is very different from what is was three years ago,” she says. 

Many of the biggest deals aimed to offer patients more access across a wider spectrum of services. In dealmaking parlance, it’s called vertical integration—a company moving into another part of the value chain. “Everybody is racing to be at the center of care,” says Greg Button, president of global healthcare services at Korn Ferry. That includes tech companies and traditional retailers. In July, for instance, Amazon agreed to pay nearly $4 billion to buy One Medical, which provides concierge healthcare service through more than 180 offices nationwide. Last year, Walmart bought telehealth company MeMD. “Integrating providers along the continuum should reduce costs and increase profitability,” says Button. 

Button says the dealmaking rush ties into the consumerization of healthcare born from the pandemic. COVID essentially forced an acceleration of care outside of the traditional doctor’s office or hospital setting, with consumers seeking education and services through non-traditional channels. As a result, consumers are much more sophisticated about everything from how pharmaceutical companies develop drugs to how fast blood-test results should be processed.

Two other dynamics are at play in driving consolidation, says David Vied, global sector leader of medical devices and diagnostics at Korn Ferry. The first, and perhaps biggest, is the growing population of Medicare-eligible patients. The Medicare population is expected to grow by roughly 50% between now and 2030, to more than 80 million beneficiaries from 54 million today. Vied says healthcare organizations are trying to increase their touchpoints with this population so that they can be involved at every stage of care. In other words, they want to have wellness offerings to prevent illness, doctors to provide treatment, labs to run tests, pharmacies to fill prescriptions, device and diagnostics companies to make products, and insurers to ultimately bill patients. “It is a distributed model that takes care out of the hands of a monolithic single hospital system,” says Vied. 

The other factor driving consolidation is the labor shortage among doctors, nurses, home health aides, and others. The numbers are scary. Nearly 20% of healthcare workers quit their jobs during the pandemic, for instance. By the end of this year, the overall shortage of nurses is projected to reach 1.1 million. At the current rate, the shortage of doctors could reach nearly 125,000 within the next decade. Home health aides, nursing assistants, medical and lab technologists, and other positions within the caregiving field are also expected to experience significant shortages.

Lack of talent is part of what’s driving the rush to acquire telehealth service providers and other companies that can automate care, says Vied. “Healthcare companies have to move to automation because there is going to be less physician involvement,” he says. He cites an MRI scan as an example: using a machine to analyze the results would free up radiologists to focus on anomalies and other acute cases, increase efficiency, and lower the cost per scan. 

The question still unanswered by the consolidation boom, however, is how much of a difference it will ultimately make. Strategically, says Button, “what healthcare organizations can create is amazing.” The problem is that without the right scale or the right execution, the benefits may accrue only to a small population of patients. The pandemic underscored the disparities in care for underrepresented populations, for instance. And the move to more automation and digital services inherently links access to care with access to technology, says Vied, who points out that most at-risk populations in healthcare don’t have access to the same level of technology as those in the preventative-care category. “What all this means for the patient is still a big question mark,” says Vied.