As more and more providers work to find ways of navigating tough economic realities and the ongoing pressure of health care reform, mergers and acquisitions have become an increasingly common part of the health care landscape. But although an acquisition or affiliation might seem like the perfect solution to a provider’s challenges, it’s important for organizations to avoid getting caught up in the M&A frenzy, and to keep a cool and detached perspective when contemplating such a major organizational change.
Here are nine factors that providers should take care to consider before moving forward with a consolidation scenario.
Mission, vision, and objectives
A step as significant as a merger or acquisition should not be undertaken without a thorough articulation of how the change will serve the mission and vision of the organization and what the objectives of the merger would be. Organizations must be able to clearly express why the alliance is being considered, as well as how it will help the organization achieve desired goals. Clarity on these points help to gain board and leadership consensus, enhance communication, and align key stakeholders.
A provider shouldn’t be pushed by the excitement of a period of high consolidation activity into making a transition it’s not ready for. An organization should instead carefully consider whether a present move is really necessary given its current position and situation and assess organizational strength and market position to determine whether the timing of such a step would be optimal. Remember that the market is constantly evolving, and so too are the different options available and unavailable to a provider.
More health care providers than ever are establishing so-called “tightly aligned” networks in order to reduce costs, improve care quality, and facilitate the shift to value-based and accountable care. Against such a backdrop, a provider contemplating an acquisition or affiliation must be sure to take into account what its market competitors are doing. If other major players are building critical mass by expanding their population base and creating a full continuum of care, an organization that is unaware of this could quickly find its market share eroding and its affiliation options decreasing.
There’s no denying that size is important in a value-based environment. For providers to thrive, it’s necessary to grow, fortify, and protect their defined population; this means ensuring enough access points to coordinated provider networks through traditional mediums, like doctor’s offices and emergency departments, as well as new entry point alternatives, like health plans, urgent care centers, and retail clinics. It’s therefore important for a provider to consider what particular points of care available through an acquisition or affiliation will best expand access and improve care coordination for its defined population.
Mergers and acquisitions may be two of the most popular types of affiliations, but they are by no means the only choices. Today, organizations contemplating integration have more innovative alignment options to choose from than ever before—from joint ventures, to sales, to real estate investment trusts—all of which can help providers meet organizational goals and boost financial stability while maintaining a desired degree of organizational independence.
Assessing and preparing for the challenge of combining two potentially very different organizational cultures is often a neglected step in the M&A process. Financial analysis and combined market share are critical for post-transaction success, but so too is facilitating the adoption of new protocols, working to blend governing boards, and making unfamiliar management styles and philosophies transparent for a new affiliate. Mutual understanding of each affiliate organization’s history, mission, and cultural aspects is an essential step in realizing the full potential of consolidation.
Board and community support
Ensuring board and community buy-in through clear and effective communication is one of the best ways to facilitate a smooth transaction process. All key parties (including boards, staff and employees, and patients) should have a firm understanding of why the provider is pursuing a particular type of consolidation, and of how they—and the organization as a whole—will benefit.
In order to ensure that the transaction is justified from a business and efficiencies perspective, a thorough due diligence process, taking into account all aspects of a potential partner’s performance, is critical. Providers should ask as many questions as possible and necessary in order to get adequate answers, and they should aim for a high frequency of in-person meetings, as well as financial and data transparency, to foster understanding and trust.
Business plan of operational efficiencies
A business plan of operational efficiencies (BPOE) is an important tool in helping providers achieve large-scale cost performance and alignment gains post-consolidation. Before a merger, organizations should create a BPOE to define what financial, operational, and clinical opportunities will arise from consolidation; the document can then be used after the merger to measure and manage progress.