Why You Shouldn’t Freak Out About the Amedisys Deal

Over the past 48 hours, I’ve had a number of conversations with nervous home health and hospice CEOs. The gist is the same. “Once the largest Medicare Advantage plan and one of the largest providers of home health and hospice merge, our referral pipeline will dry up and we’ll be forced to accept bargain basement rates. We won’t be able to survive.” I understand why leaders might fear the sky is falling, but here are three points I’m encouraging providers to keep in mind:

1. Integration takes forever. It’s going to take years for these historically disparate entities to figure out how to work together to maximize revenue. And, in the initial years, the focus will be on reducing operating cost to deliver margin. The real synergies of a deal like this are years, maybe even a decade, away.

2. Just look at the performance of home health and hospice service lines within health systems. Few command the largest share in their market. Few are serving both hospital discharge volumes and community-based referrals. Few have even been effective at getting their own physicians to refer patients within the health system. According to MedPAC, these entities that supposedly own the continuum had negative double-digit margins for years.

3. The outcome is not guaranteed. When we think of industry disruption, our minds leap to the success stories like Walmart and Amazon, who used supply chain competitive advantage to offer low prices mom-and-pop stores couldn’t match. We don’t remember the failures or the mergers that were a catalyst to industry innovation.

When Anheuser-Busch and InBev merged or when Diageo was formed, similar ripples moved through the beer and spirits industries. Rather than creating barriers to entry, these mergers, aligned with growing consumer demand, inspired a tidal wave of new small businesses and craft products that delivered on growing consumer desires.

Home care is about to experience exponential growth as the baby boom generation ages. This merger has the potential to spur innovation that creates opportunity for all providers (even better EMRs anyone?).

Innovation is absolutely essential and to innovate you have to bust out of legacy thinking. This means being proactive and creative in payer mix strategies, including direct-to-consumer offerings, and building competitive advantage. We also know that instead of fighting for the same piece of the pie, the pie can be expanded.

4. The provider who has the staff will win. The single greatest competitive advantage a provider can have or will have for the foreseeable future will be clinical capacity. We’re seeing it today as providers who are out of network for MA plans are getting high volumes of referrals because in-network options don’t have the staff. Plus, both the demands and limitations of working in a high-margin model can cause staff stress and dissatisfaction, leading to more turnover in MA-driven care.

Building a sustainable culture rooted in organizational values that are ruthlessly lived and supported by an aligned compensation and development strategy is absolutely nonnegotiable in attracting and retaining staff. Transcend clients have consistently seen turnover rates drop to the low double digits when they do this work.

This merger is not a death knell, but it is a wake-up call. Disruption is coming. Change is overdue. Is your organization building sustainable competitive advantage? Dig into market insight data, backward and forward looking. Uncover opportunities to more meaningfully differentiate and innovate. And most of all, keep building an unsurpassed culture. Contact us at hello@transcend-strategy.com to start a conversation.