Mergers and Acquisitions in Healthcare

What's the Trend?

September 20, 2018 by Navin Blakrishnaraja, Practice Director for Healthcare IT Services

Healthcare mergers and acquisitions (M & A) are increasing at a rapid rate. Healthcare organizations announced 115 merger and acquisition transactions in 2017, according to Kaufman Hall’s report. 2018 is likely to exceed the number of deals made in 2017. At this pace, the global M&A market could reach $4.8 trillion for all of 2018, according to a report cited by The Wall Street Journal.

Why the increase?

  • Reimbursement for healthcare services is evolving to value-based care (VBS) models, rather than the traditional fee-for-service model. Value-based care requires providers to control costs and outcomes for an entire episode of care. The Centers for Medicare & Medicaid Services (CMS) has introduced an array of value-based care models. Eventually, CMS will tie all Medicare payments to value-based models. 

  • To support VBS, Accountable Care Organizations (ACO) are being created. An ACO consists of a network of physicians, hospitals and other health care providers that give coordinated care to Medicare beneficiaries. ACOs call on providers to be responsible for the costs and outcomes of an entire patient population. 


    What are the benefits?

  • Through partnerships, healthcare organizations gain in the areas of support services, supplies, information technology, and services distribution across the system.

  • Providers merging to a larger healthcare organization gains access to capabilities needed for value-based care success.

  • Caring for a large patient population helps providers offset potential financial risks when a small portion of the population’s care ends up costing more or outcomes deteriorate.

  • What are the strategies for positive outcomes during mergers and acquisitions?

  • Conduct target due diligence to identify risk and assess synergy.

  • Focus on integration between systems in the initial phase, before replacing existing systems.

  • Establish both financial and non-financial goals and methodology to report on progress.

  • Make forthright decisions on executive and middle management leadership structure.

  • Utilize project management best practices to track goals and milestones after transactions close.