Healthcare M&A Operational Due Diligence


Over the past few years, hospitals and hospital systems have been in merger and/or acquisition mode. In a 2000's version of the 1880's land rush, hospitals have been staking out their territory by buying other hospitals and clinics or merging with them. Their effort has been focused on acquiring a larger and larger market share of patients. The land rush is still going on as witnessed by the CHS acquisition of HMA just a few months ago.

This trend is likely to continue for the next two to five years as further consolidation occurs. In addition, beginning in about three years, the major hospitals systems will discover that not all of their acquisitions fit with their long-term strategy or corporate direction. When the realization of this fundamental flaw in due diligence occurs, they will be looking to sell and or trade these hospitals with some of the other larger systems.

These circumstances create a real opportunity to correct the due diligence flaw described above. Hielix has developed a process to offer "Operational Due Diligence" to interested parties that will save significant time and money for either the acquiring hospital/hospital system or the potential acquisition target. The Hielix "Operational Due Diligence" program provides four critical results including:

  1. A comprehensive examination of all the primary activities impacting operational readiness for a merger
  2. A complete community assessment to determine how well the merger may be received by the community including the physicians in the community
  3. Greater market competitiveness
  4. A higher return on investment for all stakeholders

Current Challenges

At Hielix, we believe the due diligence process can be enhanced significantly. While the current due diligence process does an excellent job of examining the financial and legal issues, it rarely looks
at critical operational and enterprise issues. This leaves a rather large gap in the due diligence process. We know for example, that different hospitals often have different electronic health record (EHR) systems and the ability to integrate the technology can prove challenging. Understanding the challenge, as well as having a solution that integrates technology faster will lead to improved patient care and a higher return on investment (ROI).

Different hospitals are in different stages of satisfying Meaningful Use requirements and qualifying for incentive funds. Many hospitals may have already qualified, while others will struggle to meet the 2014 deadlines. Understanding the challenge as well as the opportunity this presents is valuable information the acquiring hospital/system should understand.

A number of different hospitals have explored new ways of delivering healthcare such as aligning with Accountable Care Organizations. If the acquired hospital is well down this path, its participation could have a major impact on the success of the acquisition. Understanding the impact to the acquiring hospitals/system is important as well being able to incorporate ACO processes into the merger. This understanding will enhance the probability of success.

Hospitals and Integrated Delivery Systems (IDNs) are leveraging technology (mobility, telehealth, robotics, nanotechnology, etc.) to achieve lower operating costs. The challenge is to incorporate these technologies into the merged structure in a way that takes advantage of efficiencies in delivery for all stakeholders. Understanding and integrating these technologies into the new structure can enhance patient care, profitability and ROI for all stakeholders.

Hospitals/Systems have many other challenges as well. ICD-10, Medical Informatics, Patient Engagement, Population Health Management are just a few of the other operational challenges hospitals/systems are trying to contend with today.

Learn more about Hielix solutions to support healthcare M&A