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Advisory Services/ January 2018
January 23, 2018

M&A Success Dependencies: It’s Not Just About the Bottom Line

In any healthcare organization, the primary goal should always be improved patient care. The shift from volume-based care to value-based care has challenged healthcare organizations to improve care delivery, and that has been a fueling factor in the incredible rise in merger and acquisition (M&A) activity over the last several years. The question you should be asking is “will this activity lead to better care delivery and reduced costs?” Through mergers & acquisitions, organizations can strengthen their ability to offer services across the care continuum; but does that improve care?

For the most part, mergers & acquisitions in healthcare come down to dollars and cents. With mergers come the cost savings with consolidating functions, such as administration, and in some cases overhead, such as buildings and machinery. Mergers & acquisitions allow organizations to tighten operations, streamline services, and increase access to capital.

This poses many questions regarding fiscal responsibility: Are the organizations really saving money? In the long run, savings opportunities are limited, so is the organization fiscally stronger? Is there an opportunity to continue to improve the financial standing?  What are those opportunities – new services? The adoption of new financial models? Don’t immediately assume that just because you are acquiring a healthcare organization (or if you are being acquired) that you are going to see immediate cost savings. Make sure you have an integration strategy in place to get there.

What does success look like upon completion of a hospital merger or acquisition? Have you established benchmarks? Consider measuring the following:

 

  1. Patient Care – The most important benchmark to consider is patient care and safety. More than likely, when multiple organizations merge, there are disparate software systems and workflows. Can your physicians focus their attention on medicine and the care of the patients or are they distracted by issues that really shouldn’t concern them? Has care improved or has it suffered? Is a plan in place to address any patient care issues?
  2. Financials – In the end, mergers and acquisitions are about the bottom line. Within the new organization, were integration points properly identified? Is the organization fiscally stronger? Is there room to grow?
  3. Culture – Whenever multiple organizations merge, there must be a melding of different cultures. There will be instances where the cultures align and other times they will not. Has leadership outlined its vision for the combined culture? Has this been communicated? Consider assigning employee representatives from each organization to collaborate on the creation of the new culture, so there is plenty of multi-level input from both organizations. Employee satisfaction MUST be measured and monitored.
  4. Communication – Are the staffs of both organizations receiving communications? Was the purpose of the merger or acquisition explained to employees? Is there effective two-way communication throughout both organizations? These are the types of questions that executives should ask themselves to ensure a smooth, positive transition.

Following a consolidation of multiple healthcare organizations, one of the most common issues is a lack of communication, specifically about how the cultures of both organizations will evolve into one. “Us” vs. “them.” Which side are you on? Which organization did you come from? Most of the time, employees are not aware of any M&A activity as the conversations happen at the executive level which causes some cultural and trust issues. It is important to cultivate a post-consolidation environment of a single team, where employee representatives from both organizations work together with management to establish clear objectives, expectations, and goals. Leaders must pay close attention to blending the cultures of multiple organizations, or they are risking failure.

An organization’s culture is their DNA. It is not just about merging strategic goals or IT systems but bringing together work styles, workflows, vision, mission, and values. If the proper due diligence is done before the completion of a merger or acquisition, executives should be partnering with an organization that lines up with their own culture. Culture is a fluid, continuous process that is not just about the organizational leaders – it is about the employees, the doctors, and the nurses who treat the patients every day. If they aren’t happy or comfortable in the culture, then patient satisfaction and care will be affected. If the quality of patient care declines, the merger or acquisition cannot be considered a success.

Trends suggest that the number of mergers & acquisitions in healthcare will continue to rise. As more organizations try to scale and offer additional services to remain competitive in the changing healthcare environment, they face an array of uncertainty from government regulations to changing payment and care delivery models. If you are looking to grow and transform your organizations, don’t simply jump into a partnership. Do your due diligence, plan, and make sure that it’s the right move for your organization.

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