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Hospital pre-merger planning: 7 success factors for technology due diligence

Marc Gelinas_Slalom Consulting_Photo_HighRes
Marc Gelinas, MHA, CPHIMS, CMPE, FACHE, Healthcare Practice Area Lead, Slalom Consulting
Roshani Patel_Slalom Consulting_Photo_HighRes
Roshani Patel, MHA, PMP, CPHIMS, Healthcare Solution Principal, Slalom Consulting

The pace of mergers and acquisitions (M&As) has increased exponentially in recent years and gone beyond being a mere trend. Mergers and acquisitions have become a necessity to transform how healthcare is managed and delivered, yet healthcare organizations have been slow in refining their approach to M&As. As the philosopher Sun Tzu muses in his treatise, The Art of War, “Every battle is won or lost before it’s ever fought,” and the same can be said for healthcare M&As, particularly during the due diligence period. 

When two organizations mutually agree to a merger or acquisition, the due diligence process begins – this is where the parties identify potential issues they will face once the union is complete. The due diligence process is similar to conducting a house inspection prior to buying a home: the buyers hire an inspector to carefully review the house to ensure it meets local building codes and to identify issues that need to be addressed when the buyers take ownership. Due diligence during hospital system M&As is intended to serve the same purpose, yet may not always be as thorough and methodical, leaving hospitals with a lack of clear expectations for what needs to be fixed and how much time and money it will take to do so.

With the stakes of M&A success being so high, it is imperative that hospital systems keep multiple factors in mind when beginning to plan, including: needs of the patient populations served; size and geographic separation; organizational similarities and differences; visions, missions and cultures; brand and identities; and last, but certainly not least, technology parities.

Among the most complicated processes during an M&A is conducting due diligence for the technology aspects of hospital systems, especially with technology playing an increasingly larger role in hospital operations and culture. Because of the technology discrepancies that may exist between organizations, hospitals need to have a much more comprehensive post-merger plan in place before closing the deal to avoid wasting time and resources remedying the differences.

Defining success for a merger or acquisition

In its most far-reaching form, merger success occurs when the merging organizations have become a single operating entity, with a single identity and standardized policies and procedures resulting in improved programs and services provided at lower total costs. Unfortunately, many mergers do not achieve this goal. In fact, the goal of some mergers is to simply combine for the benefit of size and market coverage without changing how each carries out their business. Whatever the goal of the merger, success should be defined and communicated.

Effective technology due diligence begins here

Where should merging or acquiring organizations focus their attention when conducting technology due diligence? And what should they do with the results? The following key success factors provide a framework for conducting thorough due diligence:

  • Commit to invest in success

A homebuyer would not ignore the results of their house inspection when purchasing a new home. Similarly, hospital systems should not ignore the results of their pre-merger technology inspection if they want the merger itself to create an efficient and effective single operating entity. Before a merger is official, each party should be prepared to commit to investments in timely repairs and improvements of their joined organization. 

  • Develop and approve a comprehensive post-merger technology plan

Results from the due diligence process should be implemented into a plan to execute pre-merger and post-merger changes and improvements, remedying the identified pain points. This plan should ideally be developed together and requires the approval and commitment from each of the merging organizations before the deal closes. The plan should include a relative understanding of resource and capital requirements as well.

  • Evaluate and empower IT leaders

Based on the goals of the merger, the due diligence process should include an evaluation of the leadership and management of the merging Information Technology (IT) departments. This evaluation will inform IT organization design and the transition plan to facilitate an orderly transformation. While these changes will not occur overnight, retention and recruitment plans should also be ready before the merger is final. It is essential that IT leaders from both parties have the flexibility to make the necessary changes and not remain attached to legacy systems and behaviors.

  • Take inventory of current technology and future needs

A thorough inventory of all technology in every facility, both inpatient and ambulatory, should be conducted to identify recommendations for repairs, replacements, and upgrades. Every level of technology – down to the smallest level – should be reviewed for the inventory process to be effective.

  • Assess EMR platforms

EMR platforms tend to be the elephant in the room during M&As, as organizations with multiple platforms face potentially significant challenges during due diligence. An evaluation of all EMR systems – inpatient, ambulatory, and other – must be performed to compare their reporting capabilities and compatibilities with the other party’s platforms. Standardizing how to collect and report uniform data will influence the resulting organization’s ability to improve quality and be competitive in a value-based purchasing environment. Unifying these systems must be evaluated objectively to ensure the most accurate migration.

Of equal importance, and often overlooked, are the considerations of user adoption and education. When there is little to no technology parity between the merging organizations, it is imperative to properly structure and implement change management strategies to assure successful adoption.

  • Review analytic capabilities

Assessing how each organization, and sometimes each individual facility, collects, stores, analyzes, and reacts to data is another crucial element to the process. Time is of the essence when integrating the disparate ways of working with data to create a competitive organization that can perform as one operating entity.

  • Dedicate efforts to increase collaboration

The ways information is shared, technology is used, and people work can vary extensively, even within a single hospital. The due diligence process must include an evaluation of how work is done in different areas and how it needs to shift to the most effective processes possible, which will also impact collaboration. A shared commitment to consistent processes, such as standardizing how information is shared and defining work streams, will be key in fueling cohesiveness and efficiency between people of each organization, before, during, and after a merger.            

Another underlying factor for the level-setting of technology between two organizations is the financial investment. The commitment, budget, and schedule for this investment should be established during due diligence and agreed upon by the involved parties. In some cases, a lack of investment from both parties could delay or even hinder post-merger integration success. 

External support for due diligence

Successful hospital mergers typically require outside resources to make effective progress before and after the merger. As a safeguard against potential conflicts of interest, participants should consider using different organizations to conduct the due diligence process and the post-merger implementation. Outside advisory experts can be instrumental in post-merger planning and can help hospital systems objectively achieve successful transformation in critical areas that the merging organizations may not be able to handle internally, including:

  • Implementation management: The process for how the various repairs, improvements and upgrades to technology will be managed while maintaining current operations.
  • Change management: A comprehensive plan for how the organization will embed the many changes that are critical to success.
  • Employee engagement: An approach to cultivate employee loyalty, commitment, participation, and adjustment in the organization’s transitions.
  • Community engagement: A method of increasing community engagement and support, including a marketing/advertising strategy.
  • Financial projections and budgeting: An all-encompassing budget and overview of what a successful merger will cost to implement.

The bottom line

Pre-merger technology planning is essential to successfully bring merging organizations and multiple facilities into a single, high-functioning, and effective operating entity. The commitment to develop a technology merger plan, implement the resulting plan, and dedicate investments for funding the initiatives should be viewed as a shared responsibility by both parties. Successfully merging the technologies and IT organizations of two completely different entities is challenging, but reachable with the appropriate commitment. External, impartial advisors can often aid in the delivery of an in-depth and detailed assessment, followed by a realistic implementation plan and financial investment budget. And, when due diligence is completed on time and accurately, the rest of the merger planning process and the resulting merged organization will be poised for success.