How to Navigate Healthcare Mergers and Acquisitions

How to Navigate Healthcare Mergers and Acquisitions

Tina Lj

Tina Lj.

10 minutes

Jan 8, 2024

Link copied!

How to Navigate Healthcare Mergers and Acquisitions

Acquisitions and mergers - what is their importance, and why are we mentioning them in the aspects of healthcare? Over the years, mergers and acquisitions (M&A) have significantly increased in the healthcare industry.

M&A can have a significant impact on patients, healthcare professionals, and the healthcare industry in general.

From a business standpoint, mergers and acquisitions bring cost efficiency, a competitive edge, improved market opportunities, and alignment of strategic goals. Besides creating value for stakeholders, the healthcare industry should, of course, prioritize patient-centric care and overall improvement.

If you are wondering who we are to offer perspective on this topic, stay tuned to see how our product team's experience with interoperability and healthcare technology relates to mergers and acquisitions.

How tech giants are transforming healthcare

Tech giants like Apple, Google (Alphabet), Microsoft, and Amazon are all reshaping the way healthcare is accessed and delivered. Their involvement in AI-driven diagnostics, health data integration, and consumer-focused solutions signals a future where personalized, tech-enhanced care might become the standard, presenting both opportunities and challenges.

Each of these big four companies is entering the healthcare industry in its own way.

Amazon, using its cloud services and voice technology, has entered into various healthcare sectors through acquisitions and partnerships. This brought changes in pharmacy, medical supply chains, health insurance, and care delivery. On the other hand, Apple focused on consumers. They are making the most of products like the Apple Watch and iPhone and are turning them into portable patient health hubs, combining health features and establishing partnerships with payers and health systems. Google (Alphabet) is using its expertise in AI and data storage, acquiring Fitbit to explore health-tracking possibilities and address interoperability challenges in clinical research. Microsoft, in competition with Amazon and Google for healthcare cloud dominance, focuses on its Azure platform to improve data storage and support targeted healthcare solutions.

All these companies are actively providing solutions to bridge interoperability gaps, improve healthcare, offer more comprehensive health data for payers, and improve drug development for pharmaceutical companies. However, this doesn’t mean there are no challenges. Given the valuable information involved (we are talking about the healthcare industry, after all), factors such as consumer trust issues and data security must be taken into account.

Reasons behind healthcare mergers and acquisitions

Acquisitions in healthcare are quite common and can involve hospitals, clinics, medical practices, pharmaceutical companies, or other healthcare-related businesses.

The question is: why are there so many mergers and acquisitions in healthcare? This trend often comes from a strategic move to expand the acquiring organization's reach and capabilities; it can be because it allows the combined entity to reduce costs through shared resources and improve efficiency. Sometimes, it is done if the other organization has complementary services or expertise, and in that way, it can extend the range of offered services.

A report by Kaufman Hall reveals that nearly 40% of hospitals involved in the acquisition introduced one or more services post-acquisition. The same study analyzed 463 transactions from 2015 to 2019, revealing that around 20% of those hospitals cited financial distress as a key driver for the transaction. Over one-third of hospitals citing financial distress were on the brink of closure, and over 80% were saved from bankruptcy through strategic acquisitions. Furthermore, mergers and acquisitions are proven to enhance the cost and quality of patient care, with a reduction in annual operating expenses and statistically significant improvements in readmission and quality outcome metrics. These initiatives not only ensure financial viability but also lead to expanded services, improved patient care, and increased access to capital for critical investments. At the end of the day, it means benefiting patients and health communities.

Acquisitions vs mergers in healthcare

When you are googling about acquisition in healthcare, the term that often pops up is “merger“. Just to be clear, there is a difference between acquisition and merger in general, and the same holds true in healthcare.

Both of them offer several advantages:

  • Creating a patient-centric organization

  • Reduced workload (which certainly helps employees)

  • Allowing organizations to explore new regions or add previously unavailable services by acquiring another healthcare entity, thus expanding their reach and industry leadership

  • Allowing bigger investment in technology and quality improvement

These are just some of the benefits, but negotiating a successful merger or acquisition involves having a clear vision of organizational goals. Clear vision is everything; it allows you to develop effective strategies for profitability and long-term success.

As we said in this blog, acquisitions and mergers are quite common, especially over the past decade. Analysis by the Deloitte Center for Health Solutions revealed that when executed with proper integration planning, some hospitals experienced higher operating margins post-acquisition, achieving cost efficiencies from economies of scale. The success of M&A (mergers and acquisitions) was found to be closely linked to factors such as:

  • Strong strategic vision

  • Explicit financial and non-financial goals

  • Leadership accountability

  • Cultural alignment

  • Effective integration planning

This means that if done properly, acquisitions and mergers can drive positive change in healthcare.

The important role of partnerships in M&A

The process of acquisition and mergers involves detailed planning and execution, and over the years, the approaches to it have significantly evolved, with a notable emphasis on strategic partnerships.

This is the case for other industries as well. The example is Apple and IBM. They were formerly rivals in the tech industry, but they combined their strengths to create innovative offerings. There is also the example of the Disney-Pixar merger, which focused on integrating creative talent and expertise, leading to blockbuster hits. There are many more M&A examples, both in and out of healthcare, but the bottom is that companies leverage M&A to stay competitive.

Over the years, the reasoning behind mergers and acquisitions stopped being purely for financial purposes, like acquiring assets of another company or because of market share. Collaborating with another company can bring additional value because you are combining expertise, knowledge, and creativity.

By embracing and understanding these trends, healthcare companies can not only innovate and grow but also provide elevated user experiences essential in unlocking opportunities for more success.

What do AI and M&A in healthcare have in common?

It is clear that technology is breaking barriers in healthcare, with an increased emphasis on incorporating AI technologies into various aspects of the industry. AI is helping in a lot of things, like clinical processes, data analytics, and enhancing patient care, ultimately expanding market reach.

In Healthcare M&A, AI is taking on different roles, as many healthcare companies strategically engage in mergers and acquisitions to integrate AI technologies. They acquire specialized AI companies to leverage their technologies for specific healthcare applications.

There are different telemedicine M&A trends emerging in 2024, but one of them seems to be that companies are seeking to improve or strengthen their technological capabilities through acquisitions. While there is a general slowdown in telemedicine M&A activities, some companies are choosing to acquire smaller firms with specific technological strengths. They are interested in finding smaller targets that have expertise or advanced technologies related to data security. This could involve acquiring companies with advanced encryption technologies, secure data storage solutions, or other measures to protect sensitive information.

What happens with data in M&A in healthcare?

The American Hospital Association (AHA) conducted research where findings suggested that acquisition in healthcare contributes to better infrastructure, information technology investments, and cost control. All this means higher-quality care delivery. This is nice and good, but it doesn’t mean that it doesn’t come with its own set of challenges.

Navigating technology changes during mergers and acquisitions (M&A) in healthcare isn't as straightforward as it may seem. When companies merge, they often have data scattered across different systems, making it challenging to keep things running smoothly. This can overwhelm staff, who now need to use multiple systems to acquire information, which contributes to burnout.

Beyond that, there are serious concerns like the risk of security breaches, data errors, and threats to patient privacy. Finding patient information can become manual, and mistakes happen, leading to issues like duplicate data. Staff retirements, resistance to new systems, and the eventual phasing out of old systems add more layers of difficulty.

How do you save your data?

Having a breach in data is something that is hard to recover from, and during an acquisition or merger, it can be at high risk. In healthcare, security is of the utmost importance, and a bad reputation spreads quickly and is even harder to recover from.

How to ease into mergers and acquisitions in healthcare? Here are a few tips:

  • Ensuring interoperability is the key to seamless healthcare. You can achieve smooth data exchange with principles of interoperability - technical, syntactic, semantic, and organizational. Being thorough during healthcare mergers and acquisitions is crucial. It starts with making sure you have a complete list of all the systems holding important data. Make sure only the right people can access information, secure data during transmission, and keep everything up-to-date.

  • There are many reasons why patch management is important, but to sum it up, it keeps your network secure and reliable. If you are not yet sold on the importance of patch management, just research what Patch Tuesday means for many big companies.

  • There is a saying, “Good planning is the halfway to success,” and it applies here as well. Research shows that up to 90% of transactions fail due to poor planning and bad due diligence. So, conduct in-depth due diligence and invest in external advisors, develop a clear integration strategy, and, above all - prioritize transparent communication. In the end, correct due diligence will bring value to both health clinics and patients. Before signing any agreements, be familiar with all problems, especially in data management.

  • As we said in one of our blogs, the challenges of being a tech lead, the inability to delegate is some of the most common management mistakes. The same principle works for companies as well. One company can’t do it all. Jerry Maguire said it best: “You complete me”, and we agree. You should find yourself a partner that completes you; remember all those tech giants from the beginning of the blog? They were good at some part of business, but they knew they couldn’t do it all by themselves and found someone who would take them to the next level.

  • Find an experienced third party during the M&A process - it can bring you invaluable insights and objectivity. Someone who has been doing this for years will know which critical questions to ask.

Interoperability in Healthcare Mergers and Acquisitions Connection

Navigating healthcare interoperability in mergers and acquisitions

As we explored the principles of interoperability in our other blog - technical, syntactic, semantic, and organizational – achieving smooth data exchange is beneficial, particularly in the context of mergers and acquisitions. This demands not only a deep understanding of these principles but also careful and strategic data management.

At Devōt, our product team has a lot of experience with healthcare technology and has successfully executed numerous integrations, bringing together one or more applications into a seamlessly integrated system. This has been achieved with minimal downtime and consequences for both users and clients.

If you are interested in learning more about interoperability and what it means to implement it correctly, feel free to reach out to us!