The value realization gap in healthcare buy-and-build

By Michael Needham

Healthcare buy-and-build strategies often begin with a compelling investment thesis: acquire practices, create scale, professionalize operations, consolidate suppliers and systems, and expand margins. But scale on paper is not the same as value realization.

We often see rapid, continued acquisition disguising underperformance; total EBITDA can increase because EBITDA is being bought, even when the underlying platform is failing to deliver expected operational improvements.

So, the real test comes after close: can the platform convert acquisition synergies and operational improvements into sustained EBITDA improvement without disrupting clinicians, patients, or growth?
 

Across fragmented healthcare markets, the value creation thesis typically rests on using scale to improve both growth and operating performance through greater purchasing leverage, shared services, labor productivity and revenue cycle improvements, and more.

On an investment committee slide, the case can look compelling. The challenge is converting that theoretical value into recurring earnings. Consider a platform where diligence and integration planning identify $20 million of potential EBITDA improvement:

The original analysis was not necessarily wrong, but value has leaked between identification and realization. This is the value realization gap: the difference between the benefits identified during diligence and integration planning and the recurring EBITDA ultimately delivered. Therefore, investors and management teams should not only be asking “how much opportunity have we identified?” but “how much of it ultimately reaches the bottom line?”

Procurement is usually one of the clearest synergy opportunities in healthcare roll-ups. Consolidated purchasing should create leverage across medical supplies, pharmaceuticals, laboratory services, technology and indirect categories. 

But what looks straightforward in a synergy model can be much harder to implement across clinical environments. Acquired practices may come with different supplier relationships, product preferences, and operating practices. Procurement savings may be negotiated, and new staffing models, processes, and operating procedures may be agreed centrally – but if practice managers, clinicians, and frontline teams do not change how they operate, the economic benefit remains theoretical.

Even if a program initially delivers its target, performance can deteriorate down the line: compliance slips, local purchasing returns, and new acquisitions introduce further variation. Value is only realized when the improvement becomes embedded in the operating model.
 

Closing the value realization gap requires an operating discipline that connects the original investment thesis to implementation, financial results, and sustained performance. For healthcare platforms, four disciplines can help.

Value creation programs often begin with a longlist of opportunities, but this risks defining progress by the number and status of initiatives, rather than delivery against the target EBITDA uplift. An EBITDA bridge keeps the focus on performance against expected uplifts. Each material initiative should have a defined baseline, benefit calculation, owner, implementation date, and expected P&L impact. This makes it possible to distinguish between opportunities that have been identified, initiatives that have been implemented, or benefits realized as recurring EBITDA. The question should not just be “Is the initiative complete?” but rather “Where is the value?”

Procurement, Operations, and Finance can interpret the same initiative differently. Without a common methodology, savings reported by Procurement can quickly become difficult to reconcile with what Finance sees in the P&L. Agree upfront how benefits will be measured, including baselines, volume and growth effects, inflation, implementation costs, and the distinction between one-time and recurring savings. This is particularly important where gross savings can overstate the ultimate benefit; for instance, a shared-services initiative may eliminate duplicated cost but require additional corporate headcount, technology investment, or external support. 

The KPIs should evolve with the initiative. For example, Procurement may initially track negotiated savings, contracted spend and implementation. As the initiative moves into execution, the emphasis shifts to purchasing compliance, actual price and volume, and site-level adoption. Finance then validates where the benefit appears in the P&L and whether it represents genuine incremental EBITDA. This requires shared accountability: Procurement should not stop at savings identified or negotiated, while Finance plays an active role in validating whether commercial improvements translate into sustained financial outcomes.

A corporate-level decision does not automatically translate into site-level execution. Tracking adoption and compliance at the practice level enables management to quickly identify where value is leaking and intervene.

To determine whether the existing platform is genuinely improving, management teams and investors should distinguish EBITDA added through acquisitions from EBITDA generated through organic growth and operational improvement.

Ultimately, healthcare buy-and-build success should not be measured simply by how many practices have been acquired, systems consolidated, or initiatives completed. The real test is whether the investment thesis is carried through diligence and implementation and turned into sustained EBITDA. 

Investors and management teams should therefore ask a simple question: how much of the value we underwrote actually reached the P&L, and how much of it stayed there?