Healthcare: How to Thrive in the M&A Era
Acquisitions and mergers continue unabated in healthcare. PricewaterhouseCooper’s latest report on mergers and acquisitions in healthcare found the number of deals increased 14.4 percent from 2017 to 2018. PwC expects the volume of mergers and acquisitions to continue to rise during 2019.
Success in M&A depends on how well an organization can integrate business processes, systems and data once the deal is finalized. This is particularly true for the healthcare industry, where the data that drives clinical, business and financial performance is held in a myriad of disparate systems.
With the healthcare industry straining under so much financial pressure, healthcare CIOs have an opportunity to help ensure the intended value of an acquisition is realized. This calls upon IT to get a clear picture of what’s required to successfully integrate systems, process and data.
Due Diligence – A Sneak Peek at the Stack
A common pitfall is not having enough information on which to base an accurate integration plan. Seemingly minor changes can affect the integration timeline, a critical component for success. For example, are you aware of every existing license fee you will pick up on Day One? Do you understand the nuances between the systems that will be integrated? Minor details like these can disrupt integration timelines by months, if not years. These sorts of scenarios also drive up costs and reduce the initial valuation of the deal.
While getting a foot in the door during the due diligence process is critical, the IT team’s access often varies. When possible, aim for precision in four key areas:
1. IT Systems. The focus here is about how employees conduct business. Gather as much detail as possible about ‘general’ systems, including email, productivity tool sets, collaboration software (online conferences, instant messaging), etc. Is the company using Microsoft Office or Google applications? In the digital world, understanding the systems that employees use and how they use them is just as important as providing a new employee a laptop and a place to sit.
With the healthcare industry straining under so much financial pressure, healthcare CIOs have an opportunity to help ensure the intended value of an acquisition is realized
2. Corporate IT Systems. Look at the systems that support how the organization conducts business, including enterprise resource planning (ERP), billing, human resources, payroll and expense systems. The integration plan determines the timeframe for realizing how you will transition systems. Look for synergies early on. What systems are used? How will they be integrated? What is the cost? For example, the acquired company may be locked into a five-year contract, potentially delaying the integration. It’s imperative to understand the cost and business implications.
3. Security. There are many interchangeable terms in the security realm. Security should be framed in three ways:
• IT security – What are the security controls, on a network level, around user devices? How do employees enter and exit buildings?
• Data privacy - How is the company’s data used and what controls are in place to protect it?
• Compliance – Are you compliant with regulations, whether industry-specific or global? Non-compliance is costly.
4. Infrastructure. Understanding every aspect of the infrastructure is important to knowing cost. Are data centers, storage and networks run locally or in the cloud?
In healthcare, addressing these areas is complex. Hospitals and health networks, for example, have additional systems unique to the industry, such as maintenance management information systems (MMIS) and operating room information systems. Security is multi-faceted, especially in regard to protected health information (PHI) and regulations, such as the Health Insurance Portability and Accountability Act (HIPAA).
Path to Success
While it’s important to develop the integration plan with an eye on quickly realizing ROI, remember that another key to M&A success is whether or not you can enable the acquired organization and new employees to feel as though they are part of the company.
With this in mind, focus the first 30 days on the new employees. Get them what they need – email, IM, laptops –to perform their jobs. Integration is relatively simple (i.e., porting data) and licensing is fairly straightforward.
With the needs of employees addressed, the next 30-90 days should be spent integrating corporate systems. Not only is it important to begin conducting business as a unified entity as soon as possible, but also if ROI relies on achieving synergy, integration of corporate systems must happen quickly.
Security and infrastructure will take more time due to the complex nature of both. Research, plan refinement and execution will likely take 6 – 18 months.
Keys to success
CIOs play an important role in ensuring the success of an acquisition. Understanding as much as possible about the systems, security and infrastructure upfront is vital. The greatest impediment to success is not obtaining enough detail, which affects integration, liability and future costs.
It’s also essential to understand the business objective of the merger or acquisition. Are you buying customers? Eliminating competition? Stimulating growth? The better CIOs understand the infrastructure and technology stack upfront, the more prepared they’ll be to integrate systems in line with business goals.
Consolidation within the healthcare industry is trending upward. Business drivers include the need to cut costs, improve efficiency, increase quality and expand the economies of scale required to survive in an industry undergoing a prolonged period of uncertainty. The role of the CIO has evolved from simply ensuring data and systems play well together post-M&A to a more strategic resource in ensuring the overall business goals of the merger or acquisition are achieved thanks to the power of data and technology.