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Perspectives

Health care IT and M&A

The "IT" factor for deal and integration success

As the volume of mergers and acquisitions (M&A) in the health care industry continues to rise, what do leaders need to consider about their information technology (IT) strategy before their next deal?

Merging to meet value-based goals

​Amidst dramatic shifts in business, clinical, and operating models, the health care sector is striving to deliver more effective care at a lower price. These shifts are due to a number of factors including an aging population, an intensified focus on quality and value of care, ever-evolving regulatory requirements, and innovative treatments and technologies. These factors often lead to increased costs to patients and increased spending by providers on care, infrastructure, and technology. Health care systems will likely continue to pursue strategies to decrease costs while maintaining a high standard of care.

One recent trend in this regard is the movement toward a larger footprint, control of all points of access to care, and the ability to offer services in all phases of patient care. This has primarily been achieved through M&A as smaller hospitals and independent physician groups fuse into larger health care systems to realize economies of scale. And M&A will likely continue to be a defining activity in the provider marketplace.

The role of IT in M&A

As M&A activity continues to define the health care industry, many stakeholders from across organizations come together to determine a health care system's path during the planning stages of a merger or acquisition. For many, IT considerations can be an afterthought. However, if IT integration is not a major emphasis before planning begins, it may already be too late. And the integration of health care systems can be at risk of not meeting its full expected potential.

For example, if two organizations expect to interface their systems rather than consolidate, consideration needs to be given to the timeline, complexity, and data mapping challenges that will need to be addressed. Analysis of prior mergers demonstrates that failed IT integration can result in lower-than-expected synergies and higher costs.

IT is typically the largest investment cost in the broader integration of health care systems. And it also accounts for roughly 70 percent of all synergies in the process. It is considered to be the principal driver of M&A benefits and is thus a crucial element of every integration.

Therefore, it's imperative that the core IT integration strategy is well-planned and well-executed from the very first day of the proposed merger or acquisition. A merger with such an IT strategy will ultimately position the future organization favorably to battle rising costs and a continuously changing industry landscape.

IT should be a primary consideration from the very beginning, including defining the IT strategy in supporting the M&A and defining the expected benefits.

Developing your IT strategy

When organizations fail to consider IT in the earliest planning stages of M&A, the result is that once transactions are executed, IT may not be able to deliver on the vision set forth by organizational leadership. Taking on the monumental task of merging two organizations' systems, or integrating multiple operations in another's enterprise, adds additional layers of potential hazards in regard to IT complexity.

This challenge—sizable under ordinary conditions—is greatly exacerbated by M&A activity. The anxiety and uncertainty that often occurs can have a detrimental impact on the ability to retain critical IT experts required to efficiently navigate the complexities of merging the two organizations.

IT should carefully evaluate people, process, technology, and delivery across both source and target organizations based on the priorities and objectives of the deal. Health care M&A, in particular, tends to have a number of complex IT systems and interfaces that require significant proactive planning to ensure success and reduce any disruptions in patient care. Therefore, it's critical to involve IT leadership in the early planning and strategy development of all health care provider M&A deals.

Some key initial questions that leadership must answer in the early planning stages include:

  • What's required from IT to deliver on the overall vision of the deal?
  • What IT infrastructure currently exists between organizations, and is there potential for synergies?
  • How would the necessary IT enablement be delivered, and what team will carry it out?

Answering these questions should manifest into a common understanding of strategic vision across key stakeholders, establish an integrated IT team structure and governance model, and begin to develop a communication plan. Aligning on IT strategy and establishing these governance structures during the early planning stages can lead to more efficient execution of IT due diligence.

Health care industry M&A, in particular, tends to have a number of complex IT systems and interfaces that require significant proactive planning to ensure success and reduce any disruptions in patient care. Therefore, it is critically important to involve IT leadership in the early planning and strategy development of all health care provider M&A deals.

The bottom line

​Remaining competitive in an environment of federal regulations, changed payment incentives, increased demands for efficiency and cost effectiveness, and increased competition will continue to see M&A as a strategic option.

Prioritizing IT in an early strategy discussion and as part of due diligence, conducting thoughtful planning in developing a go-forward IT strategy, and setting up the roadmap and infrastructure to execute on the IT strategy is one of the most important jobs of organizational executives prior to, during, and immediately after a transaction.

To learn more about the importance of IT in driving deal success, download the full report.

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