Consolidation in the post-acute market – Part 1

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Recently, our clients have questioned whether the post-acute market is really consolidating (or is it just hype?!).  And if there is consolidation, how does a post acute provider prepare for it.

The Post-Acute Market IS Consolidating.

Recent changes in healthcare regulation mean that, although the market for some types of post-acute care is growing, it is also consolidating. Over time, there will be fewer agencies with bigger market shares.

Readmission penalties imposed under the Affordable Care Act mean that hospital administration is more invested than ever in caring about what happens to the patient post discharge. In some markets, economically incentivized programs, such as Accountable Care Organizations (ACO’s) and bundled payment initiatives will add to this pressure. The level of complexity in identifying, implementing and maintaining this network means that there will be little tolerance for innumerable post-acute “partners.” By necessity, hospital administration will have to consolidate its post-acute referrals into a manageable few “best of the best” providers, thereby creating a network.

How to Prepare? Know your Share!

One simple, yet solid, step is to know your market share and that of your competitors, within each hospital and health system and for your service area. While market share may seem like an antiquated measure, it actually becomes very important, because of the visibility to your competitors’ share, its footholds, and its vacancies.

Market share drives the market’s perception of your service

Like it or not, your market share affects what people think of your business. If you are trying to get into a C-Suite discussion at a hospital, the larger your market share, the more likely you will get that meeting. Small players simply won’t be worth looking at, from a hospital administration’s perspective.

From a professional referral perspective, a physician or PA is more likely to put their name on the line when they are referring to a larger home health and hospice business. Based on their size alone, larger businesses are perceived as being more capable of providing better services since larger firms can typically make adjustments for influxes in patients.

Market share drives profitability

Unfortunately, market share and profitability tend to go hand in hand. Many studies have found that business units with very large market shares enjoy rates of return significantly greater than small-share business units, mainly due to economies of scale. This makes particular sense when you think about home health and hospice providers, which are typically geographically oriented – a higher geographic concentration leads to greater profitability:

  • Lower costs for seeing patients. A greater concentration of patients in a service area requires less travel time for staff to see patients thus enabling staff to see more patients in any given day.
  • Lower overhead costs. Supervisory staff can cover more nurses in a concentrated service area versus fewer nurses in a less concentrated service area.
  • Reduced medical equipment and supplies costs. With centralized medical equipment and supplies providers, you can command better pricing since your business represents a greater percentage of their base in that area.

Market share drives strategy

If you understand where your business is relative to the market, you’ll use this knowledge when making your business decisions around marketing, sales, operational management, acquisitions, and more. Taking into consideration the examples above, if you find that your market share is smaller than expected, you might take measures to ensure physicians and PA’s are fully versed in your services and capabilities so that there is less risk of being perceived as “small.” Or, you might create some programs for differentiation so that hospital administration is more likely to consider you as a post-acute partner.

By knowing your market share and knowing your competitors’ market share, you can also better predict your ability to grow. You might target certain segments that may be more profitable than others.

Getting to the Bottom of it.

There are several measures of market share that can be used. Among them are revenue, discharges, operational activity and patients served. Take a look at our sample reports to see what measures make the most sense for your organization.