The COVID-19 crisis exposed the high cost of fragmentation within the healthcare industry and will serve as the seminal event that ushers in an era of greater provider integration and concentration. COVID-19 will accelerate U.S. healthcare’s transformation toward a future characterized by the blurring of traditional lines between care delivery and financing. There will be no going back to the industry as it existed, only a going through to a stronger, more hardened, and, in some cases and in some geographies, a materially scaled healthcare system.

Three phases are anticipated as the industry moves forward:

  • A turbulent restart through the remainder of 2020, marked by initially sluggish M&A activity as at-risk providers seek the shelter of cautious buyers.
  • A shake-out will follow over the next couple of years, characterized by strong regional systems, insurers, and private equity-backed disruptors seizing the opportunity to drive performance and efficiency through scale.
  • In a final phase, rise of the titans, national mega-systems will emerge, dwarfing today’s largest systems. These behemoths will compete directly with scaled, non-traditional, ambulatory-centric networks (e.g., integrated insurance companies) a marketplace that no longer adheres to traditional delivery vs. financing distinctions. These organizations will vie to deliver on the promise of population health and achieve growth and stability through quality and efficiency.

Integrated, scaled, regional and national organizations that compete aggressively on quality and cost will lead. Increased merger and acquisition activity will be a hallmark of the transition. To help their organizations navigate these changes, healthcare leaders should:

  • Conduct a forthright evaluation of their organization’s go-forward strategic and financial position
  • Scenario plan to identify key assumptions or market events that could materially impair organizational performance
  • Chart a course forward that reflects the realities of operating in a post-COVID-19 world, including partnership models of all stripes

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