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:
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:
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:
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:
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:
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.
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This is Digital, Episode 16: From healthcare company to product company: Highmark's journey