The healthcare industry in the US has been facing widespread disruption for some years. The Affordable Care Act in 2010 demanded that the industry carry out wholesale changes to its processes and systems in order to bring down patient costs and streamline data management. This was followed by the more recent news that Amazon, JP Morgan, and Berkshire Hathaway are teaming up to disrupt the healthcare space; this flux was punctuated by the industry reshaping mega merger of CVS and Aetna.
These upheavals took place against the backdrop of rising costs, increasing industry competition, and decreasing profit margins. Overall healthcare expenditure is continuing to rise at a projected rate of 5.4%. Healthcare organizations are struggling to serve increasingly aged and care-dependent populations while contending with drug prices that rose by an average of 6.3% in 2019, medical technologies that seem to get more complex and costly everyday, and growing consumer clamor for on-demand, customized healthcare.
Squeezed on all sides and spurred by the desire for stability in the face of uncertain economic and political headwinds, the industry is experiencing a bonanza of consolidation. At the same time, domestic and foreign investors are seeing the long-term value of healthcare acquisitions, making hospitals a prime investment target. In 2017, healthcare M&A values rose by 27% to a record-breaking total of $332 billion. 2018 further upped the ante with a 14.4% increase in the number of deals closed.
But despite the popularity of M&As, success is not always assured.
A Hospital Merger Presents Immense Opportunity
You might think that most hospital mergers are motivated by a cash injection, but in 2018, only 20% of takeovers involved cash-strapped sellers. In the same year, 7 deals involved sellers with a net revenue of over $1 billion. For these mega-mergers, there’s a deeper strategy at play. Value-based care requires healthcare providers to reduce patient costs and increase patient value across the board. HDOs can achieve this far more successfully when they have visibility into and control over the entire healthcare journey.
Healthcare providers are also looking for strategic partners who can enhance their offering. HDOs that are highly capable in certain areas want to partner with providers that have complementary expertises to improve the depth and breadth of their services, and bolster their market positioning.
Adding to the complexity, giants from other industries like Apple are now moving into healthcare by absorbing existing providers.
These newcomers have plenty of capital to spend and seek to disrupt the status quo while expanding into new markets. Ironically, the threat posed to existing players from new entrants only encourages more consolidation, as organizations move to more deeply entrench themselves in the marketplace.
Financial issues do still play a role in the sustained rise of M&As. The healthcare market is uncertain and unreliable, so HDOs want to position themselves for resilience and dominance. A well-planned M&A delivers greater stability, removes competition, and increases market share. Well executed M&As will see organizations increase their buying power and secure better access to resources and technology.
The Obstacles to M&A Success
HDOs can be subject to systemic administrative frictions that can be the downfall of an M&A. It’s critical to take a clear look at the obstacles to M&A success and prepare ways to overcome them.
Here are some of the biggest challenges to a productive M&A.
A breakdown in communication across newly expanded teams/departments can result in data silos, unnecessarily repetitive actions, redundant processes, overlapping roles and responsibilities, and ill-defined jurisdictions. Vital tasks can be overlooked and responsibilities can slip through the cracks.
Both organizations involved in a healthcare merger or acquisition risk discovering that they misunderstood each other’s capabilities and/or intentions.
Insufficient Visibility and Oversight
Many providers suffer from a lack of unified visibility. There’s no single pan-operational viewpoint, so no one is aware of the full picture. This makes it difficult to forecast revenues, plan procurements, manage risk, measure performance, or track errors. Processes become confused and costs become opaque.
Of course this is always a challenge, but it compounds with the fact that key decision makers are all of a sudden even less aware of and familiar with the on-the-ground realities within their purviews. Even the most disciplined organizations experience a degree of confusion when two separate administrations merge. If HDOs are starting off without sufficient visibility and oversight into their own realities, they could quickly veer off into chaos.
Lack of Standardization and Governance
A single HDO can house a multitude of different processes and technologies. With M&A, those increase exponentially. Outdated or overextended systems that were previously sustained with creative workarounds, manual maintenance, and the operational equivalent of duct tape may no longer be manageable.
Without standardization and reliable governance, it’s only a matter of time until the gears powering your operation rust, or jam, or strip — slowing your forward progress to a crawl. An influx of new technologies might also risk the delicate balance you’ve been striking in terms of interoperability — creating hugely problematic “islands of technology.” This brings me to...
Poorly Integrated Teams, Technologies, and Systems
Being conscientious and sensitive about integrating the people and teams that make up your newly unified organization is obvious. It's also a lot easier said than done.
On the technology side, most HDOs field an abundance of legacy infrastructure that integrates poorly with the broader IT network. Combining that smoothly with the current or even legacy tech of another organization is a serious challenge.
In a large healthcare organization that has expanded over time, there’s also a high chance that different departments have evolved different systems of management. Even within the same organization, integrating these systems is a struggle. When there are two different organizations involved, each with their own history and evolutionary context, the struggle can be crippling.
With M&As factoring more prominently into the wider business picture, it’s more important than ever that HDOs get a handle on their legacy technology — making sure that it is ready to integrate into the broader IT framework and fall into place within management workflows and operational procedures.
Behind every M&A, there are hundreds of individuals and dozens of separate profit centers. It’s not hard to imagine how conflicting interests, misaligned goals, newly overlapping responsibilities, and over-inflated egos can undermine the original value perceived in the deal.
It will take a lot of attention, human intelligence, and patience to go along with a deft managerial hand and smart business structures to keep your workforce, stakeholders, and patients happy during the transition — while at the same time maintaining operational continuity and quality of care.
Most M&As involve some sort of territorial if not operational expansion — meaning the resulting business entity will often be subject to new regulatory jurisdictions and business implications. With all of the disturbances already taking place over the course of a merger or acquisition, it is hard enough to stay on top of the regulations with which you’re already familiar, let alone domains that are entirely new to you.
Of course, the biggest threat though comes from the unexpected and unbeknownst compliance issues.
5 Steps to Overcoming Hospital Merger Pitfalls
The good news is that these pitfalls can be surmounted. With strategic planning to win shareholder support and stakeholder buy-in, and plenty of data-driven foresight, a hospital merger can deliver on their original value-added promises.
Here are 5 key steps to a successful M&A.
1. Map Your Challenges and Plan Ahead
I started this for you in the previous section. The CEO, COO, CTO, CISO, and other key stakeholders should compile a tailored list of obstacles and challenges that they expect to encounter. It's important to be as detailed as possible in order to plan effectively.
Anticipate technological challenges as well as business challenges. Measure your current medical technology and IT capabilities against your expected needs to pinpoint any gaps. Map your computer networks and their architectures to the systems, devices, and data flows that they will need to support. Make sure that processes are in place to secure and update that architecture as needed. Identify likely pain points or obstacles to integration and interoperability. Take note of any tooling that will need to be replaced, is altogether redundant, or will require some sort of add-on to make work.
Once you have a comprehensive list of pitfalls, you can begin building a plan to avoid them. Some problems will be trickier to solve than others, since you’ll have to address the underlying issues as well as their business expressions. In some cases, you’ll want to enlist outside opinions, expertise, or help.
2. Acknowledge and Empower the Human Element
It's important that you not dictate changes and new norms from on high — removed from the on-the-ground realities, as you sit in the boardroom. Go into the field and talk to the people. Try to understand exactly what each department and constituent position is responsible for, where there is overlap, and where there are gaps. Ask employees what they perceive to be their most vital contributions and what they would change.
Don't leave your people in the dark. Describe to them what type of changes are in store, what the transition process and timeline will look like, and how they can provide feedback. Then work closely with local managers to redraw the boundaries for each department and position.
Like with most projects, things will need to deviate from the plan and be modified to some extent. Don't be afraid to make adjustments. Let your staff know that until told otherwise no changes are set in stone — they have a say and they're encouraged to make their voices heard.
It may sound trivial, but it's in situations like these that team building exercises and group activities serve the most utility. Often it is easier to build social cohesion than professional cohesion and having the former in place will make the latter immeasurably easier to achieve.
3. Inject Visibility and Monitor Results
For the vast majority of HDOs, the single most important action you can take is to improve visibility across your business. With better visibility, you can spot solutions, break down silos, streamline workflows, relieve bottlenecks, and smartly introduce automation.
360-degree ecosystem visibility speeds up the process of merging disparate and sometimes divergent management systems and workflows. Gain insight into operational interactions so that you can identify and merge redundant processes while disentangling overlapping fields of responsibility. It also helps you to spot and fill gaps that might affect your quality and continuity of care.
Naturally, visibility and monitoring go hand in hand. Smart monitoring mechanism should be used to digitally capture your organization's strategic assets and process as well as to track their statuses. Among other things, this will enable you to:
- Know which assets you’re bringing into the merger and understand those that you’re taking on
- Gain insight into the usability of every device in your recently-expanded ecosystem
- Pinpoint when to schedule maintenance and services in a newly-extended infrastructure
- Monitor the utilization of tools and assets broken down according to associated costs and workflows
- Parameterize your capabilities and capacities as a function of demand — informing on procurement planning and resource allocation
- Plot advances you’ve made towards integrating networks and systems
- Identify any regulatory implications of the M&A, while assessing and advising on compliance requirements
With good monitoring in place, you can set profitability benchmarks at the department level, the facility level, and the organization level. It will also help you to frame both organizations within a unified point of view so that decisions can be made more intelligently and more quickly — achieving the synergies on which the deal was based.
4. Leverage Technology
Now you’re ready to find ways to make technology serve you. Existing tech can gather and compile data from across your systems, devices, networks, and actions to help deliver full visibility into your organization. Importantly, technology can also be leveraged to automate manual processes — reducing human errors, and freeing more time for more skilled staff work. This is particularly valuable following an M&A as there is a lot of disruption; it's easy for focus to be lost and absent minded work to be bungled.
Beyond general automation, here are some other ways that technology can help resolve obstacles to a successful M&A:
- Unite data from disparate sources to break silos and improve communication and collaboration.
- Serve as a single data repository for all your vital business information, together with powerful, customizable analytics.
- Improve the usability and compatibility of existing tech, and inform upcoming purchases of medical devices and clinical assets.
- Integrate different technology toolboxes into a shared ecosystem.
- Provide actionable analytics, reporting, and follow-up.
To accomplish all these things you may need more than one tool. A lot of the visibility and monitoring propositions mentioned above will also require some level of dedicated technology to pull off. Most likely, you already have and are under-utilizing an army of tools.
Your goal should be to outline the most important business functions you’re after and draft a consolidated list of the tools you’ll need. Once you have that list, you’ll want to plan out exactly how you intend to use each of the listed tools and how you’ll work to integrate them into a unified management apparatus.
5. Follow the Data
A shared data repository is key to overcoming silos and ensuring that every department can access the same information. It enables you to collate all your data — gathered through different systems and tools — in a single place while streamlining access control and simplifying enforcement. This improves communication between teams, helps to ensure that every department is on the same page, and powers better data-driven decision-making on every level of the organization.
Once you’ve made your data duly accessible, analytics and data processing should be applied to help you glean maximum insights into your organization’s performance. Optimize performance for better productivity by spotting gaps, overlaps, and mistakes in your processes, resource utilization, and technological configurations.
Business risks and digital threats should be factored in as well. Smart solutions can be called on to collect and assimilate all the relevant data points to dynamically assess risk at the device, department, and organization levels.
The idea is simple: with more data-driven processes and supervision, you’ll be better positioned to coax as much value as possible out of your M&A strategy.
Improved Visibility Delivers Success for Hospital Mergers
In the face of generally soft market conditions, shrinking margins, and rapid change, the healthcare industry is ripe for M&A. By joining with other organizations, HDOs hope to offset each other’s weaknesses, compound strengths, reduce competition, and generally make themselves bigger, stronger players in the marketplace. Fearful of a tsunami of disruption, HDOs are exploring new strategies to improve synergies, create added value, carry over savings, gain greater efficiencies, and ensure that patient care is not disrupted and perhaps made better as a result of the M&A.
Alas, the reality seldom lives up to the promise. Poor streamlining/onboarding, inattention to detail, and a lack of understanding and visibility into the newly combined business as a whole often makes a nightmare of M&As.
Thankfully, integrated digital monitoring and management technologies can be used to collect data, inject operational visibility, and ensure that all relevant information is at the fingertips of interested parties — anywhere at any time. With the right tools and some strategic planning, you can improve visibility, break down silos, and open the door to smart workflow streamlining and extensive automation.