Changing population demographics. Healthcare consumer expectations. Regulatory uncertainty. These trends are all driving healthcare executives to consider mergers and acquisitions to meet new demands and business growth. For anyone involved in Healthcare M&A, 2020 brings forth as many opportunities as it does challenges.
Capital investment in healthcare mergers and acquisitions continue at or near historical trends. Today, “mergers and acquisitions are the preferred growth plan for 44% of executives” (Modern Healthcare) [i].
We’ve all seen the stories in the press. These recent examples highlight how organizations are responding to market forces.
- CVS and Aetna – promise to “remake the consumer health care experience.” How? By having more control of costs across the full spectrum of care and the ability to influence member engagement
- Cigna and Express Scripts – expect a positive impact on controlling healthcare costs. How? Through vertical integration of medical and pharmacy benefits.
- United Health and DaVita – plan to improve care quality, cost and patient satisfaction. How? Through integrated ambulatory care delivery systems enabled by information technology and supportive clinical services.
To keep up, healthcare organizations need capabilities that provide non-traditional care being delivered in non-traditional settings that’s reimbursed as part of value base care models. Continued growth in the government programs will drive consideration for additional or expanded capabilities to support these lines of business. Centene acquiring WellCare demonstrates using M&A to add capabilities and diversifying lines of business. Organizations are expected to continue to use mergers and acquisitions to add capabilities to their business models in healthcare.
The Impact of IT Strategy on M&A Success
Mergers and acquisitions may be similar, but they’re never the same. There is no off-the-shelf solution that when applied makes the new combined healthcare organizations work together seamlessly. “40 percent of the M&A value in healthcare can be tied directly to IT strategy. Without a focus on IT integration, that 40 percent is at high risk.” (McKinsey)[ii] . When combining organizations, Healthcare executives need to consider many factors that impact people, process, and technology.
On day one, there are now two or more of everything: two work forces, two sets of business processes, two IT organizations. Work is required to meet the needs of healthcare consumers from each organization that still exists. People, business processes, and the systems that support them are still needed.
To establish a well-planned strategy for IT integration and overall success, Healthcare IT executives need to be providing input to due diligence, pre-close, and close activities.
Challenges that risk M&A success
- Regulatory guidelines can limit the details and understanding of a well-coordinated due diligence and discovery prior to close
- Risk associated to technical debt further defined and understood in post close activities
- Failing to emphasize IT and excluding IT in planning from the beginning
- Organizations are unable to unify their operations minimizing efficiencies
Combining or integrating multiple complex IT systems requires extensive planning that begins a continuous journey of understanding. The assumptions used in modeling synergies often change as the new healthcare organization learns more about each system and associated business process.
Healthcare business, HR, and IT executives need to look at Day One and see challenges that need to be addressed to start the integration correctly. New employees will need connections for secure email, corporate intranet, payroll, and benefits. Bi-directional access to applications and data from both organizations also needs to be available. As integration begins, IT executives will need to accommodate impacts to infrastructure and ensure capacity and scale can securely be met. Healthcare data privacy requirements add additional challenges as the newly acquired organization is integrated.
Driving M&A success through a flexible digital foundation
“Many mergers don’t live up to expectations, because they stumble on the integration of technology and operations. But a well-planned strategy for IT integration can help mergers succeed” (McKinsey) [iii] . Mergers and acquisitions of all sizes are an exercise in change management. Regardless of type of acquisition, employees, customers, and partners will be impacted. Acquired employees will learn new tools and technologies and adapt to a different corporate culture. Business teams will learn to use new applications and follow new processes. Healthcare customers and partners will integrate with the healthcare organization differently. To succeed, a well-defined strategy requires a modern, flexible IT architecture.
Flexible IT architecture requirements
- Enterprise-grade functionality to deliver enterprise-ready services for both traditional and modern applications
- Elastic high performing storage architecture to drastically simplifies storage management.
- End-to-end security for all applications, data at rest, cluster, and storage encryption.
- Self-Driving Operations to help organizations plan, manage and scale their Software Defined Data Center. Users can perform application-aware monitoring and troubleshooting along with automated and proactive workload management, balancing and remediation.
- Automated Infrastructure Provisioning automatically deploying all the building blocks of the Software-Defined Data Center as ready-to-run Workload Domain.
- Integrated Lifecycle Management to simplify and automate patching and upgrading of the full private and cloud stack with workload domain-level lifecycle management.
Advantages for IT Executives
- Scaling capacity on demand to provide the performance needed for the new combined organization. This must account for spikes in demand required due to seasonal business needs as well as unknown capacity not realized during due diligence.
- Agility to support changes in integration assumptions uncovered during the journey of detailed discovery post close. The ability to pivot quickly to overcome expected and unexpected challenges is critical.
- Drive automation to free resources and focus on business transformation, supporting the shift to new, more cost-effective operational models
- Enabling end-to-end protection and proactive monitoring of member data across systems
- Layered, application-focused security and automated end-to-end security policies streamline data sharing, application access and compliance. Simplifying Day One business needs for new employees’ secure connections to corporate applications and information (email, benefits, human resources, payroll, intranet).
IT executives that can provide a flexible IT architecture will be better positioned to handle the planned integration activities as well as respond to unforeseen challenges uncovered during integration. A modern software defined architecture will provide the flexibility and scale needed to meet the demands of the merger. These digital technologies will help enable organizations to maximize the capital investment and realize the synergies planned for each unique acquisition.
How VMware helps
VMware’s software-defined architecture approach provides an agile foundation to elevate IT to innovate and rapidly drive new services and business value resulting from mergers and acquisitions. Healthcare organizations can take an evolutionary approach to modernization by addressing the need for digital services while controlling risk to security or critical legacy applications. VMware enables organizations to rapidly automate IT, reduce costs, and build a development operations (DevOps) environment to respond faster to the dynamic markets, improve employee and member experiences and protect confidential data. Modernizing the data center using VMware will provide IT executives with the modern flexible IT architecture to help their mergers succeed.
[i] Healthcare executives expect M&A to boost business in 2019, https://www.modernhealthcare.com/article/20190108/NEWS/190109923/healthcare-executives-expect-m-a-to-boost-business-in-2019
[ii] Making M&A deal synergies count, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/making-m-and-a-deal-synergies-count
[iii] Understanding the strategic value of IT in M&A, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/understanding-the-strategic-value-of-it-in-m-and-38a