Critical Healthcare M&A Strategies: A Data-driven Approach


Healthcare mergers and acquisitions (M&As) continue at a rise following a trend that began in 2009 with 50 M&A deals. 2017 recorded the highest number in recent history with 115 deals, and 2018 could be even higher. The scope and scale of M&A activity is changing as organizations seek to align for growth and access, and position for new competitive value-based markets. Hospitals now expand and capture market share, not only by building a larger footprint, but by focusing on more consumer-friendly means to deliver care. This focus means care is distributed through both virtual and physical access points. In those entities, enriched data can be used to deliver care outreach that actually makes a difference for patients. And that is where the new margins are.

Historically, technology and talent were primary assets used to weigh the value of M&A activity, but data is an equal pillar. Early and regular due diligence cycles that fairly attribute value to an organization’s data are essential to seeing the full value of the M&A. The ultimate goal, of course, is data integration across the organization. Often the approach has been to rip and replace the EHR of at least one of the organization. But this approach is costly and culturally disruptive. Integrating data through a digital platform like the Health Catalyst® Data Operating System (DOS™) allows organizations to use their current systems and manage core financial and other KPIs in the first six months of a merger. Organizations can never be fully integrated until the data is integrated, and with a rip-and-replace strategy, that integration will take years and cost tens—if not hundreds—of millions of dollars.

Read more about the pitfalls of a rip-and-replace approach in this whitepaper.

Aggregating data and connecting with patients are survival strategies for managing population health, reducing costs, and improving outcomes. These gaps are often filled by adding services, clinicians, patients, or technology. An M&A process, using data as the means of integration through a DOS-like platform, can be an effective way to acquire these assets.

Try to find a healthcare organization that doesn’t have some type of merger, acquisition, partnership, or joint venture (JV) in its strategy. And, reflecting on the pace of activity in the last five years, organizations are still seeking to reduce complexity and achieve integration. M&A activity has moved beyond one hospital system acquiring another. Horizontal and extra-regional acquisitions are common: hospitals acquire free-standing ancillary services and health plans buy provider groups. National and regional mega-deals are increasing the size and complexity of organizations.

Buyers (the acquiring organizations) face enormous responsibility and risk with M&A transactions. C-suite leaders have a lot to consider—enterprise-wide technology, finances, operations, facilities, talent, processes, workflows, etc.—during the due diligence process. Information technology (IT) is a huge investment and risk for healthcare systems that position it, and the CIOs who manage it, at the top of the list in the due diligence process. Effectively bringing together and rationalizing the IT organization, systems, and data is a prerequisite for organizations to achieve desired scale advantages for cost and quality. But attention is often heavily weighted toward time-honored balance sheet and facility assets rather than next-generation assets with the long-term strategic value in the M&A process: data. The tangible nature of data makes it relatively easy to organize in advance and use for strategic planning, benchmarking, measuring, and reporting. A data-first approach also positions organizations well for population health, chronic disease management and value-based contracting: all synergetic goals of expanding in size and scale as a result of the M&A process. Data is easier to merge than IT systems that require everyone to have the same technology. Focusing on data is a faster way to gain strategic results.

Healthcare C-suite leaders must aspire to match the strategic objectives of their M&A, partnership, or JV to the demands of population health, value-based care, and a shifting healthcare economy. They must understand the implications of M&A activities and ask the right questions along the way:

  • Is our organization well positioned for the M&A?
  • What are our key concerns about the M&A process?
  • Is aggregating IT systems a good strategy?
  • What due diligence disciplines do we need around data?
  • How do these disciplines apply at various points on the M&A timeline?
  • What tools and services can support our work throughout the M&A process?

Key Healthcare M&A Strategies and Concerns for C-suites

Every C-suite executive makes key contributions to the M&A strategy, and each has highly specialized obligations, though data is a common thread:

  • The CEO targets sellers that help advance the strategy of the organization, whether it’s serving a new market, adding scale and presence, or improving contracting abilities. The CEO considers the overall organizational strategy, including how data supports M&A operations, and the risk strategy, preparing for unforeseen delays or barriers that may not surface during due diligence.
  • The CFO is motivated to know all costs and risks associated with the deal, how much to invest, and what’s at risk financially. The CFO is interested in operating expenses, balance sheets, and debt implications, but requires education on the long-term value of data as an asset.
  • The CIO must address the rationalization and rapid progression to standardization in key areas such as data governance, digital health, population health, and value management, which requires a combination of disciplines and convincing other C-suite members that a data-first approach is the right strategy.

In M&A operations, CIOs are challenged to meet many goals that go beyond the IT infrastructure and solutions, which heightens the importance of their responsibilities.

The Digital Health Environment Elevates the CIO Role

CIOs are legitimately worried about how their roles are changing and how they can best deliver value to their organizations. CIOs should consider expanding their roles to be sure they are providing the thought leadership for the next generation of technology, whether that’s providing change management, data analytics leadership, or advancing digital health. In doing so, along with a partnership with the executive team, they will enable the desired value realization from the M&A.

CIOs are responsible for lining up the systems and data portfolio for the partner organizations. They may have to apply strong data governance across the new enterprise even if governance in the existing organization is inadequate. They will take on additional cost and complexity, design and build a new IT organization, all while still delivering on the standardization and value from the last M&A. And they need to fulfill the organization’s current IT initiatives while taking on a new set of initiatives.

One of the key leadership responsibilities, CIOs must also gain the sponsorship of the other leaders to support data governance, definition, and sharing with the new organization. This is necessary because leaders naturally use data and talent to meet specific, often specialized, objectives, so data and talent become siloed and further decentralized as a result of M&A activity.

CIOs must prepare themselves with strategies, tools, and methodologies to make their M&A work more predictable and cost effective, beginning with due diligence around data.

Data Due Diligence

The due diligence process is comprehensive and demanding, but it lays the groundwork for a successful M&A. M&A deals can move quickly, and the groups that prospectively plan and position for the M&A will benefit the most from this work.

Organizations spend significant due diligence on financial components (balance sheets and assets). IT leaders typically look at information systems and talent, but rarely look prospectively at data. Unfortunately for these leaders, a new company isn’t integrated until the data is integrated.

The model for conducting due diligence around data involves four disciplines:

  1. Establish the strategic objectives of the M&A with the leadership team.
  2. Prioritize data along with the standardization of solutions and the design of a new IT organization (i.e., a co-equal effort for data, tools, and talent).
  3. Identify the near-term data strategic priorities, stakeholders, and tools.
  4. Assess the talent and consider creating an analytics center of excellence (ACOE) to harness organizational capabilities.

Establish the Strategic Objectives of the M&A

The first step of any sound M&A strategy is to establish strategic objectives, then determine how to support those objectives. Buyers may want access to population health contracts. They may want more patient population data to better understand what’s going on with care in the community. For example, many M&A deals involve physician practices, so the acquiring company can expand services and market reach. Buyers often seek to improve operating efficiency and quality, establish new care coordination capabilities, or offer new specialty services. Will these new assets allow the acquiring company to reach its goals? Due diligence around data helps form insights about prospective assets and their ability to help the acquiring company achieve its strategic objectives.

Prioritize Data Over Systems and Solutions

Organizations must conduct due diligence to appraise the value of data prepare for the M&A. The typical question posed from the buying organization’s CIO to the seller is, “What systems do you own?” Instead, the questions should be: “How do you manage your data? Where does it exist? How strong is your data governance? How are you using that data today for high performance?”

M&A due diligence typically focuses on scaling existing technology, solutions, and platforms. Acquiring new practices seems to warrant new platforms, but once the M&A is complete, the new enterprise is left to figure out exactly which divisions and departments own what systems.

Systems are rigid when it comes to change. People get very attached to systems because they are hands-on with them every day. Change somebody’s workflow and it changes their view of the world; it’s very disruptive and expensive.

Unlike systems change, data change is welcome. People like to know that an M&A will give them access to more data and a greater variety of data. Data becomes a rallying cry for the organization because it’s less disruptive to the day-to-day use of technology. Disparate source systems, such as finance, supply chain, registration, scheduling, A/R, and EMRs, are just a few of many source systems that contribute data to the organization. Ripping and replacing these systems is costly from a financial and intellectual perspective, but it can be avoided. A data-first analytics platform (such as DOS) alleviates systems disparity, aggregates and harmonizes data, reduces complexity, and mitigates risk during M&A activity.

Data is easier to acquire and organize than systems, so organizing around data is a better way to reach strategic objectives. Most organizations don’t do the diligence on data as if it were an asset, even though it warrants the discipline equal to or exceeding that which is applied to finance and information systems.

There’s simply too much focus on technology systems and not enough focus on how to harmonize data. Due diligence needs to center on acquiring, aggregating, organizing, and stewarding data.

Identify the Value of Data

Data is an organization’s most strategic asset and leaders must consider all the ways it provides value:

  • Quality and performance data can help an organization evaluate the target partner’s ability to meet strategic objectives in a M&A. The nature of emerging partnerships (e.g., pharmacies buying health plans) means more uncertainty about a partner’s operation because it’s in a different vertical. These are new types of partnerships, and leaders from both sides can use data to help qualify the relationship.
  • Data aggregation creates access to data and insights at the division, department, and team levels, allowing each group to lay the groundwork for performance improvement. Data aggregation also ensures data quality when the time comes to establish benchmarks and measure performance.
  • Data can assist population health efforts and care management programs. Aggregating data provides a more complete picture about the quality of patient care, gives clinicians information about patients throughout the continuum of care, and facilitates coordination beyond individual episodes of care.
  • Data allows organizations to be proactive so they can anticipate problem areas with merging operational and clinical workflows.
  • Enriched data creates intelligent analytics that improves retrospective dashboards to give care and financial managers prospective views of risk-based patient populations.
  • Data can verify claims of high-quality care, strong financial performance, and superior brand reputation.

A buyer must often demonstrate its performance potential relative to risk-based contracts. Value-based care is not about what or how many services health systems provide; it’s about becoming more efficient in providing those services and more focused on improving outcomes for patients. This new era of value-based care puts a greater premium on data, the due diligence of that data, and data governance.

Assess the Talent to Harness Organizational Capabilities

Analytics leaders, information officers, data analysts, and data architects are high-value roles that deserve special attention during the due diligence process. It’s important to catalog and analyze all skills in both organizations and ask important questions: Are the right people in place to ensure interoperability of data and systems? Does the organization have an analytics center of excellence?

Without a center of excellence or common culture, talent can’t be effectively leveraged. During the organizational changes that accompany M&A operations, data and analytics staff are among the most valuable assets in an organization. The CIO should share how the staff will be organized to retain them through the M&A disruption.

Apply Lessons Learned to Future M&A Activity

Organizations can focus on a flawless M&A process that results in a high-functioning, cohesive company by developing and applying the concepts outlined in this article. This is worth noting because the consequences of a flawed M&A strategy will be magnified for the buyer during future M&A ventures.

A year (or five years) down the road, companies tend to set their sights beyond the latest acquisition, especially when planning another one. But the best M&A strategy requires long-term due diligence around data that continuously monitors and identifies hotspots for improvement:

  • A cultural divide between the merged partners.
  • Workflows established during the M&A process that don’t match performance and quality expectations.
  • Unresolved data complexity from past acquisitions.
  • An acquired organization that still acts as an independent entity.

Data enables insights that can empower organizational leaders to anticipate problems and develop solutions.

M&A Strategies Should Be Data-driven and Prospective

C-suites consider a multitude of competing priorities during the due diligence process, all through a prospective lens. Culture, mission, finances, talent, operations, and facilities usually top the list. IT also makes the list, but data is usually a more obscure priority. Data must be well-governed leading up to the M&A if effective governance is to survive after the M&A.

The prospective nature of the M&A process creates a window of opportunity, usually in the first year, when people are focused on the changes. Whatever goals make it into the project plan during this time are likely to get done. Later in the M&A timeline, it becomes very difficult, if not impossible, to achieve goals not prioritized up front. By proactively applying the four data disciplines described in this article, CIOs can use this early window of opportunity to their advantage. CIOs can prioritize data, up front, as an asset equal to the buildings, clinicians, and talent.

Aggregating data after the fact in the frenetic pace of healthcare—whether it’s the next regulation, the next market change, or the next acquisition—is a tough undertaking.

Data Builds the M&A Framework

Healthcare C-suite leaders increasingly look to M&As to build or increase infrastructure, capabilities, services, patient populations, and more. The data involved in these M&As plays a critical role in determining if the partnership can serve larger populations while managing costs and assuming greater risk. It can assist C-suite leaders to prospectively build the case for (or against) M&A ventures. A data-first approach using a platform like DOS gives access to disparate data from across the system, and is indispensable for successfully executing and seeing the full value of an M&A or partnership.

Additional Reading

Would you like to learn more about this topic? Here are some articles we suggest:

  1. The Key to Healthcare Mergers and Acquisitions Success: Don’t Rip and Replace Your IT
  2. Healthcare Mergers and Acquisitions: Reducing IT Consolidation Expenses with a Data Operating System
  3. Seven Ways DOS™ Simplifies the Complexities of Healthcare IT
  4. The Health Catalyst Data Operating System (DOS™) Solution