While mergers and acquisitions (M&A) activities may have slowed in the first half of 2020 due to COVID-19, that event has also reminded us how having larger, more diverse revenue streams and greater buying power can help healthcare organizations (HCOs) weather difficult times more effectively than their smaller counterparts.
As we round out 2020, there are many signs M&A activity is on the rise as smaller independent practices and hospitals seek financial stability and/or large health systems capitalize on market forces, economies of scale, and disproportionate CARES funding to fuel growth.
As the M&A market heats up again, here are key considerations for CIOs and other technology leaders.
More IT diligence in due diligence
Healthcare M&A transactions, whether joint-venture, partnership, or other affiliation, require thorough evaluation of complex IT requirements to identify cost savings, promote data sharing, and increase clinical and business value. While CIOs, as well as IT applications and infrastructure experts, have gained a seat at the table during the due diligence process the past few years, Pivot Point Consulting’s M&A team believes those experts’ knowledge and experience are still being underutilized.
Painful and expensive lessons have been learned when IT is not part of early discussions. Often, the result is many organizations find the road to M&A and other affiliations filled with costly hidden IT potholes.
Acquirers that do not perform a thorough assessment of the acquiree’s IT infrastructure, including their network capabilities, data center, and security as well as gain a solid understanding of the applications environment and IT staffing and talent expose themselves to unnecessary financial, technical and security risk.
Even with the intent to conduct careful due diligence, it can be difficult to execute internally for the acquiring entity. Operational IT staff may lack the skills and / or bandwidth for the level of analysis required. They also can bring inherent biases to the process and recommendations. Increasingly, healthcare systems mitigate this risk and internal burden by hiring an experienced health IT consulting firm with expertise in affiliation and M&A assessment and planning to assist early on — and throughout — the program lifecycle.
Assimilation: Start with the boulders
Once the affiliation agreement is executed, the hard work of bringing together and rationalizing the systems, processes and workflows of the two organizations begins. Each type of affiliation — joint venture, acquisition, or other business structure — brings its own requirements. Full M&A is typically the most complex — it often involves hundreds of applications, different infrastructure and core technology, two talented teams who have not worked together, and end-users who expect the IT shop to continue to deliver responsive quality service and solutions within tight timelines.
For most healthcare organizations, the two primary systems in M&A are the enterprise resource planning (ERP) and electronic health records (EHR) system. Understandably so, they collectively serve as the life blood of the business and clinical operations.
Often, the ERP system is a main driver of the assimilation timeline. It’s also one to plan and execute carefully — business operations run on it — including paychecks of staff, supplies inventory and cash flow.
Planning for clinical systems integration or replacement is complex. Organizations may choose to maintain separate EHRs indefinitely — especially given advances in data interoperability. This is a change from just a few years ago but brings with it its own complexities. For acquiring organizations, migrating the affiliate to its EHR can be as complex as a new install — not only is there system build, testing and training, there are numerous decisions about 3rd party application disposition and associated contract management that can take months to work through.
When acquiring hospitals with a unified EHR / ERP system such as CPSI or MEDITECH, there are decisions to be made about untethering the EHR and ERP particularly if conversion timelines differ. The acquiring HCO may need to build temporary interfaces, revamp workflows, and work closely with legacy vendors on the timing and financial implications.
These are the types of complex decisions that require the input of experienced solutions architects and skilled healthcare IT M&A professionals. As it can be hard to find internal resources with the necessary skills, time and focus, bringing in experts to help strategize, plan and manage can bring assurance and success.
“Avoid potholes” playbook for the long-term
As consolidation in healthcare continues, M&A and affiliations will become a core business capacity for many health systems. Organizations with intentions to grow by acquisition and affiliation should use standards tools and methodologies — a “playbook” that enables consistent, efficient project planning and executions. This playbook is more than a timeline — it should include guiding principles and tools for assessing the scope of work, governance for key decisions, and cost and budget management frameworks. In short, it should show how components fit into the big picture and provide guidance and guardrails to ensure the transition is smooth and successful.
Pivot Point Can Help
Pivot Point Consulting works with clients nationwide in IT M&A and affiliation planning to support organizational growth and clinically integrated network development. We bring the expertise, experience, framework and tools and assist clients in planning for and optimizing their broader technology ecosystems with and across their M&A and affiliation community.
Learn how Pivot Point can solve your M&A challenges, contact us today to get started.