Those who follow the healthcare industry are undoubtedly familiar with the wave of consolidation that has been driven by the passage of the Affordable Care Act and the broader shift in market dynamics in recent years. For hospitals and health systems, pursuing a merger or acquisition can bring operating efficiencies, greater negotiating power due to expanded geographic presence or patient population, and a diversification of revenue sources.
Broadly, there are two primary types of M&A activity hospitals and health systems engage in: geographic and non-geographic/opportunistic. Geographic acquisitions can help the buyer develop or enhance a specialty in a specific region or can boost negotiation leverage. Non-geographic/opportunistic transactions can also provide negotiation leverage, but may also be targeted strictly for financial reasons (e.g. revenue opportunity or potential profit on a future sale of the asset). In either instance, varying degrees of integration may be decided upon and consideration should be given to the work and projects required to ensure the success of the transaction:
- Complete Integration – The likely scenario in many geographic-driven acquisitions, this involves an integration of nearly all systems and processes in order to enable population health management and operational efficiencies. The ultimate outcome here will be seamless incorporation of the acquisition or merger target into a health system behind one unified brand. Considerations include:
- Intelligently allocate resources – It is a challenging task to know how to leverage the institutional knowledge of employees during a transaction. Employees have full-time jobs and taking on a transaction can not only be stressful for the employees, it can actually slow down progress during an integration. Knowing whom to leverage and how much is a key decision that must be made prior to close and examined in the first few months of integration.
- Plan for disruptions – In a merger, sometimes things don’t always go as planned and disruptions may occur. However, careful attention should be paid to things such as regulatory reporting to avoid disruption which may cause damage to the business from a financial and reputation perspective.
- Incorporate change management – Carefully consider how each system or process integration will affect physicians, staff members, and patients. Create a plan to communicate upcoming changes and continuously mitigate and address risks.
- Pay special attention to security – A merger or acquisition can raise the profile of your hospital or health system and hackers may take notice. Ensuring security is a part of each integration discussion can help keep your organization’s information safe.
- Partial Integration – In this scenario, the buyer will choose to maintain separate brands, strategies and specific systems, but may want to integrate or consolidate certain functions such as shared services for efficiency purposes. Patient information may also be combined into a central data repository to enable population health management (as is done in Accountable Care Organizations and Patient-Centered Medical Homes). Considerations include:
- Same considerations as complete integration, as applicable
- No Integration – Most likely in non-geographic/opportunistic deals, little to no integration occurs and the hospitals or health systems maintain totally separate systems, strategies, and brands. This type of acquisition offers benefits that don’t require much integration at all, such as leverage in negotiation with payers, purchasing discounts, or the neutralization of a competitor. Considerations include:
- Define a dashboard – Even though integration is minimal, a dashboard populated with key metrics can help monitor the status and progress of the investment and help mitigate the risk of mismanaging the asset.
- Assess ongoing investment level – Projects should be identified to determine the level of investment necessary to maximize the value of the standalone asset.
- Actively avoid dis-synergies – The two organizations likely have separate IT and overall business strategies. Reviewing these and communicating key changes on an ongoing basis can help avoid dis-synergies and the associated unforeseen costs that can occur.
- To-Be-Determined Integration – On occasion, a hospital or health system might opportunistically execute an acquisition or merger that requires some additional time to determine the right course for integration. Considerations include:
- Identify threshold parameters – Defining parameters can help in deciding the integration point and determining when the “do nothing” strategy has reached its end.
- Know when to act – Inevitably, business pains will occur. The question becomes, when does that business pain become a threat to the business? For example, having separate contact centers may drive down patient engagement and satisfaction and could begin to hurt the business.
- Consider when to get out – Track that your organization is seeing the outcomes over the desired time horizon that led to the acquisition in the first place. If the intent was to achieve better contracting rates with insurers and those haven’t materialized, it might be time to locate a buyer and exit the deal.
Whether for geographic or opportunistic reasons, a hospital or health system must support its merger or acquisition by identifying the appropriate level of integration required to ensure a return or outcome that meets investment goals. At each degree of integration, projects can be performed to set the newly incorporated hospital or health system up for success. As you combine and integrate (or consciously avoid integration), make sure not to ignore the most important constituent your organization has, the patient. Viewing each integration or process through the patient’s eyes can uncover valuable insights that can be used in the formulation of your integration strategy.