With acquisitions in the GCC healthcare sector expected to accelerate this year, the region’s larger hospital groups must prepare for serious challenges which could undermine profits from mergers with physician practices, said an expert.

While consolidation in healthcare can bring high returns, the bigger hospital groups must guard against the threat of losing key staff and customers, warned PA Consulting Group in its review.

Acquisitions of smaller hospitals and physician practices can leave large healthcare groups with bigger management issues and have developed an approach designed to maximise the value of a merger and ensure you keep your best people, it added.

Joe Hawayek, healthcare expert at PA Consulting Group’s Middle East and North Africa (Mena) office in Abu Dhabi, said the key for those large healthcare groups who are increasingly looking to acquire smaller hospital groups and free-standing physician practices is to maximise business efficiencies and lessen downtime of delivery of care.

"What is intended to happen after a merger, and what happens in reality, are often two different things," he pointed out.
 
"For instance, while acquisitions are designed to strengthen the bargaining position with insurers, healthcare prices are relatively standardised by regulators and insurers, and by a market that has a choice of providers," he stated.

“Some of the other major challenges faced after an acquisition is the blending of different organisational cultures, the merging of IT infrastructures and the balancing of local practice versus hospital group control,” said Hawayek.

PA’s new advice on healthcare acquisitions follows extensive studies by the team at its Abu Dhabi regional offices.

The top consulting group said competition for customers had driven acquisitions in the healthcare sector around the world, and very notably in the GCC region with hospital groups acquiring physician practices in Dubai, Abu Dhabi, Qatar, Kuwait and Saudi Arabia.

In 2015, NMC Healthcare, the UAE’s largest private healthcare provider, acquired ProVita International Medical Centre, Abu Dhabi-based Americare Group and Dr Sunny Healthcare Group, a chain of six medical centres and three pharmacies in Sharjah.

Al Noor Hospitals acquired Rochester Wellness which provides rehabilitation therapy in Dubai and Muscat, and Dubai-based Aster DM Healthcare bought Riyadh’s Sanad Hospital.

Jason Harborow, the head of PA Consulting Group (Mena), said: "Last year was a record-breaking year for the number of mergers and acquisitions in healthcare around the world, particularly in the GCC region, and analysts forecast that high-profile acquisitions will continue this year."

Larger hospital groups, he stated, stand to achieve 15 to 20 per cent net profit margins after integrating a physician practice that has strong clinical, but less mature operational efficiencies.

But they must devise new business efficiencies as their operations change and carefully manage the change on staff during the integration, he noted.

“People are a healthcare provider’s most costly and valuable resource, accounting for up to 60 people of operating costs, and top performers are the first out the door at times of uncertainty,” he added.-TradeArabia News Service