Sep 19 2022

How an Early IT Integration Vision Leads to M&A Success in Healthcare

Merger and acquisition activity is abundant in healthcare. The successful integration of two organizations’ IT ecosystems requires planning early in the process.

Mergers and acquisitions in the healthcare industry continue to grow, spurred by a number of factors: Physician practice owners are retiring, specialty practices are joining larger organizations, and overall healthcare organizations are finding efficiencies in patient care and accounting by centralizing operations. In 2021, healthcare industry mergers and acquisitions were up 16 percent compared with 2020, valued at a record high of $440 billion, according to the business advisory firm Bain.

As mergers and acquisitions return to pre-pandemic numbers, it’s important that IT leaders at healthcare organizations that are considering a merger or acquisition start planning. Experts say an early evaluation of current and potential technology infrastructure is essential to a successful M&A.

“Whenever a healthcare organization is thinking about an acquisition, it’s a big undertaking. It could have significant disruptions to business activity. If a practice or a facility is purchased by a hospital or another party, the organization has to be careful about how they roll out the IT implementation,” says Zak Eisenberg, vice president of Merritt Healthcare Advisors.

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Because technology is foundational in all healthcare organizations, having IT teams at the table before, during and after the merger or acquisition process is essential to its success, says Isabelle Bibet-Kalinyak, an attorney with the law firm Brach Eichler.

“Technology is so expensive to manage, change, merge, adapt or totally get rid of, and that is definitely part of the equation,” Bibet-Kalinyak says. “If the electronic health record systems are not compatible, or if you don’t have a plan on how to transition them, then there could be interruptions of care. There could be breaches under HIPAA where patient records are not safe. So, a buyer will want to know a lot about the IT infrastructure of a practice, as well as the history.”

Preparing for IT Integration Before a Healthcare Merger or Acquisition

The health of an organization’s IT infrastructure is an important part of its value.

During the merger or acquisition process, buyers will likely evaluate a healthcare organization’s IT infrastructure based on how it was built (either in house or by a third-party vendor) and maintained, and will also consider claims history and security policies, including cyber liability, says Bibet-Kalinyak.

EXPLORE: Why planning is key to managing health IT integration during an M&A.

“The more disconnected and difficult it is to transition the IT, the greater the impact on the purchase price,” says Bibet-Kalinyak. “The buyer will try to put the cost of a transition on the seller by reducing the purchase price.”

Eisenberg notes that legacy systems for patient care or billing may have been operated by third parties, so data may not be as accurate. He adds that smaller healthcare organizations can be less sophisticated when it comes to tracking patient outcomes and other data. As recently as 2019, more than 10 percent of physician-led practices were not using EHR systems, according to the Centers for Disease Control and Prevention.

“It’s key to have IT systems that are scalable, flexible and accessible to make them more attractive to the market,” Eisenberg says.

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Understanding Health IT Inventory During a Merger or Acquisition

As healthcare organizations prepare to go forward with a merger or acquisition, it’s important for executive and IT leadership to work together early in the process to:

  • Determine IT goals
  • Establish an IT integration timeline
  • Identify key differences in the organizations’ health IT ecosystems
  • Identify key differences in IT management, procedures and policies
  • Develop plans for IT staff changes, training for new systems, managed services and mobility management
  • Map out security consolidation and how to execute IT integration securely

Understanding a healthcare organization’s IT inventory is also important, as leased hardware and software licensing can cause significant issues if not properly handled, Bibet-Kalinyak says. Creating a transition plan during the M&A process can ensure that both sides are prepared to manage all types of IT.

DISCOVER: Tips from CIOs on navigating mergers and acquisitions in healthcare.

“When you lease that photocopier before you return it, you have to erase the memory. Otherwise, you have millions and millions of megabytes of patient data in there. Protecting patient data is paramount throughout the process. A healthcare organization cannot sacrifice profits at the expense of patient data safety,” Bibet-Kalinyak says. “Not just because it’s the law, but also because the organization could face additional consequences from a public relations or a liability standpoint.”

Preparing for the Post-M&A Integration Process in Healthcare

Accounting software is the easiest to integrate once the merger or acquisition is complete, Eisenberg says, but it can take six months to a year for a full EHR integration, depending on the systems used.

“There are a lot of software systems that work within any business outside of healthcare, but the healthcare-specific ones are the most challenging because you’re working with sensitive data. You can’t rush that process, because those systems are critical to the organization’s ability to function properly and deliver care,” Eisenberg says.

Illustration by David Vogin

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