Gay Casey is a managing director in BRG | Prism Healthcare’s hospital performance improvement practice and leads the mergers and integration service line. Casey recently spoke with Becker's about mergers and integration.
Question: What are the trends driving the recent spike of mergers and integration in healthcare?
Gay Casey: As the demand to manage unsustainable health costs increases, the value-based payment movement is accelerating and continues to disrupt the status quo in healthcare. Healthcare leaders are focused on gaining scale and/or vertical integration to position themselves favorably for an expansion of value-based care. An increasingly popular strategy to fulfill all these goals is to engage in hospital merger and acquisition (M&A) activity. Unlike past merger efforts to command greater market power, today’s long-term vision for consolidation is more often driven by the goal to broaden covered lives, integrate care delivery and optimize administrative/overhead expense.
Q: Can the industry expect heightened merger activity to persist into 2020?
GC: In the acute care setting, transactions slowed in 2019 for several reasons: reduction in for-profit divestitures, buyers generally being more selective, and mixed reviews around whether transactions have actually reduced costs and/or improved quality.
However, in the ambulatory market, transactions are still trending strong, with long-term care (LTC) transactions leading the way. The surging aging population and recent healthcare initiatives that expanded insurance coverage are major M&A drivers. Lower reimbursement rates for Medicare and Medicaid patients are causing LTC organizations to focus on operational efficiencies by leveraging economies of scale found through mergers and acquisitions. Home Health Care and Hospice are also seeing steady transaction activity.
Q: What best practices for a successful merger have emerged? Any specific tactics or pitfalls to avoid?
GC: Mergers offer opportunities to improve care as hospitals consolidate. However, integrating two healthcare organizations can present the most complex, information-dense, and unpredictable processes within the corporate sector. Regardless of deal size or complexity, integration success hinges on following these 6 fundamental principles:
- Clearly define the drivers of the deal up front and develop a focused integration strategy
- Set planning and operational parameters
- Develop desired operating models early – tough decisions don’t get easier with time
- Understand the specific value drivers and create accountability for execution
- Actively manage execution to accelerate the transition - moving quickly into integration to harness the value of the deal is critical to fully realizing value
- The “soft stuff” matters: Communication, Culture, and Change Management expertise are critical to success
For more information, visit thinkbrg.com or contact Gay Casey at (214) 893-4123.