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Contemplating a merger? Consult your customers first.

By Brian Wynne, VP and GM, NRC Health. This article has also been published on Becker’s Hospital Review website.


Healthcare is a hyper-competitive landscape. Healthcare leaders are increasingly looking for any available advantage. Health systems and providers pursue service expansion, more customer entry points, operational efficiencies, broader patient mixes and new economies of scale. At face value, one fiscal strategy may seem to promise it all: a merger.

Healthcare leaders are seeing promise in the approach, if the flurry of the last decade’s hospital acquisitions, mergers and affiliations are any indication. From 2012 to 2017, 459 health systems entered merger agreements. In the first quarter of 2018 alone, 30 more merger agreements started moving toward finalization.

Before they consider a merger of their own, leaders are well-advised to cover their bases. They should weigh all factors that contribute to a potential merger’s success or failure. It may be prudent, though, to give special consideration to one domain that healthcare has an unfortunate history of marginalizing—the voice of the customer.

It’s a sobering truth that healthcare organizations have often excluded their customers from offering input on design, delivery and decision-making. This approach is no longer sustainable. A business only exists if it has customers, so insight from that cohort should be front-and-center among all the other data-points related to the strategic goals of a merger.

Minoo Javanmardian, PhD, partner at Oliver Wyman Health & Life Sciences, puts it like this: “Any merger is fraught with risk. If the real reason for a merger is to improve position in the marketplace, then you need to be very thoughtful of how you integrate and how you preserve differentiated capabilities on both sides.”

In other words, the key word is differentiated—and whose perspective determines that? The customer’s. Broadly, there are two customer-intelligence domains leaders should examine.

  1. Market fit

To be profitable, successful mergers can’t rely on administrative efficiencies alone. Nor will economies of scale suffice to realize meaningful return.

Instead, the newly merged organization will need to leverage its new capabilities to expand services, capture more of the available market and ensure that their customers keep coming back.

This is a considerable challenge. The first step is to streamline clinical integration, in order to expand service without interruption. This requires not only an accounting of each health system’s capabilities, but also precise knowledge about what the market will bear.

These are some of the essential criteria leaders should use to assess optimal service expansion:

Demographics—While demography alone cannot make for precise predictions, knowing a population’s age, gender, race, education level, income and household size can help healthcare leaders gain a base understanding of the market.

Health status—Indicators of health status are valuable guides for a health system. The number and type of chronic conditions, and patients’ self-reported rating of their own health, are reliable indicators of a market’s future need.

 Utilization—Even more revelatory might be the reported use of healthcare services. It’s critical to identify the most common reasons for provider visits, how providers are selected, and what percentage of the population defers or leaves the market for care, as these are robust indicators of healthcare-consumption behaviors.

 Insurance—The payer mix in a given community exerts a powerful influence on overall consumption. It’s important, however, to move beyond questions of private versus public coverage. Organizations should also understand plan types, payer brands and levels of coverage.

 Competition—Healthcare leaders need to evaluate the penetration of traditional and non-traditional competitors in order to inform a response strategy. These data will illuminate market opportunities (or threats) beyond the four walls of the hospital, and potentially even beyond the boundaries of the industry.

Innovation-readiness—Understanding the market’s appetite for technology as an alternative to traditional services can inform the innovation strategy of the merged entity by providing a strong signal for where future investments should be made.

  1. Brand-customer relationships

Mergers don’t begin and end with how large the new entity has become, or how existing board seats will be divided. A merger between unique healthcare organizations is also the merger of unique brands.

Brand relationships are delicate. Organizations in the process of changing how, where and with whom they operate inherently change their identities. Customers will assess this identity shift primarily as it relates to them, asking: “Is this new organization looking out for me?”

Understanding how these customers form emotional attachments to brands gives merging organizations a distinctive advantage over those unaware or unconcerned with customer sentiment that drives behavior. Two strong organizations can create a stronger unified brand, but only if they understand how and why they relate to their customers.

Leaders should take these measurements of each organization’s relative branding strengths, to avoid missteps in the course of finalizing an operating relationship:

Awareness—First, the merging entities should use customer insight to assess where each organization stands, with the goal being to uncover which organization occupies top-of-mind status in the market. Cultivating the brand with the strongest caché will provide a tail wind for future efforts.

Preference—Consumers develop preferences for healthcare brands, typically by service, and this is a strong indicator for future utilization. If a health system follows a merger-enabled growth strategy in core service areas, they would be wise to seek a partner that enjoys majority market preference in those areas.

Brand differentiation—Through years of marketing efforts, community involvement and providing healing care, every healthcare brand develops certain characteristics for which they are best known. Look for complimentary brand differentiators to strengthen a known and desired position in the market, or seek a merger with a brand with strong alignment to your position goal.

Not the end of due diligence—but a promising start

Customer intelligence alone, of course, won’t answer every question about a new merger’s prospects of success. The planning, diligence and execution of a successful merger is a matter of dizzying complexity.

Just remember: as merger exploration begins, healthcare leaders can’t afford to ignore these market factors. Organizations that consider the customer in every decision will ultimately be positioned for success in a consumer-driven healthcare market.

NRC Health’s Market Insights Surveys cover many of these relevant points of inquiry for healthcare mergers. Click here to learn how to access survey data for your area.