Why Healthcare Brand Consolidation Is A Costly Mistake
Over the last ten years, private equity firms have wholeheartedly embraced the healthcare industry. With private equity firms continually adding rural hospitals, physicians’ practices, nursing homes, and ambulance companies to their portfolios, healthcare mergers and acquisitions represent potential for dramatic increases in market share and revenue.
You might recall some of the most notable healthcare consolidations:
- With a $330 billion investment portfolio, Apollo Global Management acquired the firm that oversees the operations of 88 rural hospitals in 29 states.
- Cerberus Capital Management, a $42 billion investment firm, purchased 35 hospitals and urgent care facilities in 11 states.
- Waud Capital Partners has consolidated investments in health with six portfolio companies, buying up more than 100 independent practices in specialties from dermatology to gastroenterology.
Jumping on the “brand” wagon
Should private equity buyers consolidate practices and hospitals into a single brand, or leave them as established, independent brands? On the surface, consolidating newly acquired businesses seems logical after an acquisition, but there are factors to consider from a healthcare marketing standpoint.
The potential pros of consolidation
From a marketing standpoint, there are many perceived benefits associated with a business consolidation strategy. Consolidation can help reduce an organization’s marketing budget by the economics of scale. Benefitting from their size, larger organizations can often negotiate better terms from suppliers, vendors, and advertising outlets.
With consolidated brands, it’s also thought to be easier to maintain a consistent voice in the market. Not only can it reduce complexity for the benefit of the acquired brands themselves, but it can make it absolutely clear to medical consumers what the best choices are when it comes to healthcare decisions.
Additionally, younger and smaller healthcare organizations may jump at the chance to reach a more extensive customer base. To them, brand consolidation is a small price to pay in order to catapult their business to new heights. These consolidations often come with the implementation of unified procedures, which help to lower overheads, eliminate redundancies, and improve operational efficiencies. While these outcomes may be attractive, both to acquiring organizations and to those being acquired, there are more considerations to take into account.
Consolidation comes with cons, costs, and consequences
Established brands matter in each local service area and there are potential downsides to the consolidation strategy. Dr. Graham Kenny, CEO of Strategic Factors, has found that establishing a corporate identity at the expense of giving up well known brands can backfire – sometimes spectacularly. Healthcare is truly a local business and is often people-driven, as patients have far more loyalty to their individual physician than to a practice brand name. Because healthcare consumers take a long time to develop brand loyalty, the rebranding of a newly purchased practice can be off-putting to many patients.
Another downside to these consolidations is that they can hit patients where it hurts the most: their wallet. A study performed by Laurence Baker, PhD, professor of health research and policy at Stanford University, and Daniel Austin, MD, of the University of California San Francisco, looked at prices paid by private insurers for 15 popular procedures, such as cataract removal, vasectomy, and knee replacement. The study showed that having a higher concentration of physicians in a geographic area actually increased the price of services.
The key reasons not to consolidate the brands of acquired practices and hospitals are:
- Healthcare is truly local and it is often hyperlocal to specific physicians. Don’t waste time and money on brand consolidation that confuses patients. Make it easier for them to find “their doctor” and make that doctor look better via reputation management tools.
- Brand building is expensive and very time consuming. If you have purchased good brands, leverage and grow them. Changing “public” perception about a brand is a lengthy process. It diminishes the goal of a PE firm by spending significant time and resources to start over with the established brand.
- Own more of the local search results by further optimizing the acquired practice’s website to rank higher, while also getting your overall portfolio’s support brand site to rank higher in each geographic service location. If you can make local search results point to your practices, you will win the key component of the patient acquisition battle.
All things considered
Brand consolidation can introduce a lot of headache, both for the organizations and their patients, so it’s important to carefully consider how it can affect all parties involved. What PE groups need is to identify a trusted partner, experienced in improving the online visibility of healthcare organizations and their providers. Controlling your online presence, specifically in terms of brand reputation and digital marketing, is the easiest method to ensure all your acquisitions and brands continue to be profitable and help increased numbers of new patients choose you for the care they need.
SocialClimb is ready to help all your brands with their healthcare marketing needs. Our platform optimizes and automates the marketing process so you can attract more of the right patients in less time. We provide you with all the data you need to understand which marketing activities generate the best results, and SocialClimb customers consistently see more than a 3x return on their marketing spend. Contact us today.
