Why Hospitals Should Buy More Digital Health Startups

According to a new report from Accenture, healthcare mergers and acquisitions in the U.S. amounted to $241 billion by May 2015, the highest year-to-date figure ever. Accenture said the most prepared healthcare executives, “will systematically manage M&A opportunities as a portfolio, and evaluate how a potential deal will influence the whole." A major consultancy recommends that hospitals should also consider acquiring digital health startups and other vertically-integrated companies.

Horizontal healthcare M&A is when hospitals purchase other hospitals to command a larger market presence. However in most cases, horizontal acquisitions have failed to generate the desired effect. Accenture estimated that at least 10% of the anticipated cost savings are not realized. In contrast, vertical healthcare M&A is increasing since its value is better understood.

Accenture said the share of non-acute acquisitions or vertical M&A as a portion of total provider acquisition volume increased from 64% in 2006-2010 to 74% in 2011-2014. Meanwhile, horizontal acquisitions decreased from 32% to 21% in the same period. Acquisitions of digital health startups is growing and is set to increase from 1% of overall acquisition volume in 2014 to 8% by 2018 since acquiring these IT startups truly transforms business models in healthcare.

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