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Top 10 Pivotal Factors for Successful Mergers and Acquisitions

Posted by Matthew Smith on Oct 28, 2015 3:32:11 PM

Healthcare executives are surveying industry change, their market position, and their ability to meet organization goals and mission as they evaluate opportunities while simultaneously protect the well-being of their own organization. However, for a variety of factors, from operational to financial to cultural, not every consolidation is the right one. Before savvy leaders dive headfirst into the current merger and acquisition frenzy, they need to take a measured step back and assess the following ten factors that will prove pivotal to a successful merger or affiliation.

1. Define your mission, vision, and objectives. In a constantly evolving and unclear environment, it is critical to thoroughly articulate the ambitions of any significant change your organization is contemplating. Why is your organization considering this alliance, and will this arrangement help achieve desired goals? The reasons for mergers are plenty. Acquiring economies of scale, achieving geographic expansion, increasing access points, and enhancing access to capital are among the primary motivations in the current transformative climate. Gaining consensus among your board and executive leadership early will contribute to a unified search process, enhance communication, and align your key stakeholders.

2. Timing is everything – determine the right time. In a period of high consolidation activity, it is easy to get wrapped up in the excitement. Do your organization’s current position and situation necessitate a move right now? Many organizations rush to the negotiating table without fully assessing whether the timing is optimal, or if they are ready for the transition. Conversely, the market today does not look like the market did six months ago, nor will it look like the market six months from now. As the market evolves, so do options both available and unavailable to your organization. Potential targets or acquirers may align with competitors, or market activity could force your organization’s hand to the point where consolidation is the only option. A keen awareness of your organizational strength and market position is paramount when evaluating potential maneuvers.

3. Know the market – what is your outlook for the future, and what is its effect on your organization? The shift towards value-based payments and accountable care means that now more than ever healthcare providers are forming “tightly aligned” networks to reduce costs and improve the quality of patient care. Are other major players expanding their population base through additional access points, developing accountable care organizations (“ACOs”) and exclusive contracting arrangements, and creating a full continuum of care into the post-acute arena? The organizations with critical mass are going to come out on top. Failing to adequately assess your competitors and their situations could portend a situation where your affiliation options become limited and your market share eroded.

4. In a value-based environment, size matters. How can you increase your defined population? As mentioned above, for thriving and financially sustainable providers, it will be crucial that they grow, fortify, and protect the defined population that they serve. It is becoming increasingly crucial that organizations provide sufficient access points to coordinated provider networks through both traditional mediums (emergency departments and physician offices) as well as innovative entry point alternatives found in the new competitive provider environment that exists today (health plans, urgent care centers, m-health, and retail clinics). Consider alternative points of care to acquire or affiliate with in order to expand access and improve the coordination of care for your population – your competition likely is.

5. Choose the right affiliation structure – there are more options than just mergers and acquisitions. Today’s healthcare environment provides an increased number of innovative alignment options for organizations contemplating integration. Gone are the days where organizations needed to complete outright sales or mergers with full change-of-control. Instead, many organizations are pursuing affiliations to meet organizational goals and strengthen financially, including joint ventures, clinically integrated networks, sales to real estate investment trusts, or joint operating agreements. Affiliating can be an attractive option to maintaining a degree of organizational independence while propelling the organization’s mission and fulfilling its defined objectives. Just be clear that the affiliation structure will be the best option to meet your goals.

6. Evaluate cultural alignment to protect against breakdowns once the transaction is complete. Easily the most overlooked aspect of any potential merger is the eventual fusion, and potential friction, of combining two organizational cultures. Post-transaction success requires more than diligent financial analysis and combined market share. More and more transactions are stumbling out of the gates because leadership underestimated the difficulty of one or both organizations adopting new protocols and systems, blending the governing boards, or understanding management styles and philosophies. Assessing the history, mission, and cultural aspects of each organization is imperative to develop the understanding required to construct the mutually beneficial and shared vision necessary to achieve the future entity’s operational efficiencies and full potential.

7. Ensure that both boards and communities are behind the transaction and mission. Good communication is required to ensure as smooth a process as possible with any transaction. It is vital that all key parties, from the boards and medical staffs to employees and patients, have a firm grasp of why the organization is pursuing this action, and how they will benefit from it. Achieving alignment and understanding among the community will confirm the necessary parties are in sync while addressing and relieving any anxieties the deal may foster.

8. Conduct effective due diligence to ensure that the efficiencies and business justifications support the transaction. During the due diligence process, it will become clear how your potential partner is performing: their vision, goals, actions, and composition of the C-suite and board. The due diligence process is the appropriate time to ask as many questions as possible; it is imperative that you get the answers you need. A high frequency of meetings and discussions, particularly face-to-face interactions, and transparency with financial and quality data are strongly encouraged to generate the necessary levels of understanding to ensure the transaction remains compliant with antitrust legislation and that the market benefits desired and proposed are feasible.

9. Consider the partners’ “whole being” as an organization that can meet your needs. As an organization, identify how future industry changes will impact your needs across the care continuum. This may include bundled payments, ACOs, clinical integration, patient-centered medical homes, ambulatory delivery sites, payment changes, access to capital, new care models, and health plans, etc. Physician alignment models, recruitment, and research are also opportunities that should be addressed. Projecting future industry developments and the impact to your strategy and needs could put your organization ahead of the game in the years to come.

10. Once the merger is complete, execute the business plan of operational efficiencies (“BPOE”) to position your organization to achieve the gains that were the reason for the merger. The BPOE serves as a great tool to define the financial, operational, and clinical opportunities that will be gained through the merger before it happens. After the transaction is complete, use the BPOE to measure and manage progress on the implementation actions necessary to achieve the intended goals and efficiencies. These may include program and service consolidation, elimination of service duplication, and infrastructure integration. Theoretical synergies mean little without implementing and actualizing them. The BPOE should serve as the blueprint to follow in order to propel your organization to enact the clinical, operational, and financial benefits that compelled the transaction in the first place. 

Topics: Mergers, Acquisitions, Mergers & Acquisitions, Mergers and Acquisitions

Mergers and Acquisitions: Key Considerations for Creating Efficiencies Through Consolidation

Posted by Matthew Smith on Aug 11, 2015 4:36:39 PM

By Brandon Klar, MHSA, Vice President GE Healthcare Camden Group

Originally published in the August 2015 issue of Compliance Today. Used with permission.

As a result of the Affordable Care Act ("ACA"), healthcare mergers and acquisitions ("M&A") have increased dramatically as providers attempt to consolidate to achieve economies of scale and provide a full continuum of services in support of population health. However, at the same time, there are specific anti-trust regulations that must be considered when contemplating a merger or acquisition ("M/A"), and recent compliance and enforcement activity shows that it is not just hospital-to-hospital consolidation that creates a concern; acquisition of physician practices can also be subject to anti-trust enforcement action. Healthcare providers must conduct effective due diligence and analyses to ensure that the efficiencies and business justifications for the M/A support the transaction, and that the benefit to the market in terms of quality and cost of care are apparent and fully achievable. Integrating anti-trust compliance into the due diligence phases of M&A considerations is imperative.

Incentives associated with the ACA, growing financial pressures, and infrastructure needs have led hospitals and other providers to seek partners in order to survive in the new healthcare delivery system. As shown in Graph 1 (below), hospital transactions have risen significantly during the post-ACA years. In this period, hospitals have attempted to align in order to provide the full continuum of care and capture the maximum patient population needed to transition to population health-based methodologies, all while seeking to create greater efficiencies from consolidation.

At the same time, hospital acquisitions of physician practices have increased for many of the same reasons, but particularly because of the financial needs of the practices and the desire of hospital systems to employ physicians as an alignment strategy in the population health transition. According to the American Medical Association, as of 2012, 53 percent of physicians were self-employed as compared to 76 percent in 1983.1 Simultaneously, the Medical Group Management Association reports that annual financial losses per provider (all multi-specialty) have increased from $143,834 in 2013 (based on 2012 data) to $235,866 in 2014 (based on 2013 data), representing a 64 percent increase in annual losses per provider. Historically, hospitals have not excelled at managing physician practices. Concurrent with the rapid increase in hospital-hospital M&As and hospital-physician group acquisitions is the evolution of healthcare antitrust laws in the post-reform era. Long-standing evidence shows that consolidation of hospitals reduces competition and drives up market prices in a fee-for-service environment. This effect is counter to the goals of the ACA and thus has received increasing scrutiny from the Federal Trade Commission (FTC). In fact, Edith Ramirez, Chair of the FTC, recently stated:

The success of health care reform in the United States depends on the proper functioning of our market-based health care system. The current consolidation wave could have substantial consequences for health care reform efforts that depend heavily on competition to control costs and improve quality.… Consolidation risks upsetting this competitive dynamic and harming consumers.2

In line with the FTC’s concerns, there have been more challenges to consolidation activities, including the Promedica-St. Luke’s case in which the U.S. Court of Appeals for the Sixth Circuit upheld the FTC decision to block the hospital merger of ProMedica and St. Luke’s Hospital in the Toledo, Ohio market due to the reduction in competition and likelihood of increasing prices in the way of premiums and copays for consumers.3 Further, in a historic case the FTC challenged the acquisition of Saltzer Medical Group ("Saltzer") by St. Luke’s Health System in Idaho based on the tenet that it would violate federal and state anti-trust laws. Although St. Luke’s argued that the acquisition created better coordination of care and supported the goals of the ACA, they could not show that the efficiencies would decrease the overall costs of care while improving quality.4

Although consolidation by way of M&As may be the best alternative in some cases in order to succeed under value-based payment and population health based models, it is imperative that hospitals and medical groups are able to demonstrate the efficiencies of the consolidation outweigh the risks under reduced competition. Ultimately, these systems must show not only the improved quality and reductions in costs associated with the M/A, but also illustrate how the efficiencies and cost reductions are translated to reduced cost of care that is passed on to consumers, and why these efficiencies can only be gained through M/A. Key considerations when considering new mergers or acquisitions include:

  • In hospital-hospital transactions, what efficiencies can be created between the entities that will reduce overall costs, and how can that translate to reduced costs of care for consumers?
  • In hospital-medical group transactions, what efficiencies can be created between the hospital and medical group that will reduce overall costs, and how can that translate to reduced costs of care for consumers?
  • Is the merger or acquisition the only way to accomplish the stated goals? Is there another structure that can produce similar results while keeping the organizations independent?

Hospital-Hospital Transactions

Efficiencies associated with hospital-hospital transactions are regularly cited by the organizations’ boards and senior leadership as a fundamental driver to formally merge operations, yet many newly formed firms are ill prepared to achieve and sustain these savings without significant planning or external consultation. It is for this reason that the FTC has increased its scrutiny of submitted Business Plans of Operational Efficiency ("BPOE") associated with proposed transactions as a means by which to overcome the potential anticompetitive effects of the transaction.

Successfully merged firms have achieved efficiencies across the myriad of administrative, support, infrastructure, and clinical hospital functions while demonstrating their ability to enhance quality through care model redesign and clinical programmatic alignment. Efficiency plans for such integrations were framed and constructed pre-transaction with the support of external healthcare experts, respecting each party’s inability to share competitively sensitive information. The plans were further refined and enhanced post-transaction with dedicated multidisciplinary teams composed of representatives of the transacting parties focusing on specific functional integrational plans. These efficiency plans were built around a clearly articulated vision for the merged firm and maintained well-defined action plans specifying how and when each efficiency would be achieved, the likelihood of achieving each efficiency, the associated quantifiable savings, and any related capital or operating costs of implementation. When well-constructed plans are developed and implemented, the operational and financial benefits are often the first advantages illuminated. But with time, these efforts drive cultural alignment that regularly translates into further collaboration and efficiencies beyond those previously highlighted.

Short-term efficiency savings opportunities can be achieved by integrating back-office functions such as finance, human resources, and legal services. Full consolidation of staff and contract services will lead to substantial savings, because these efficiencies can be clearly achieved and sustained through a merger. The centralization of management and joint contracting for services and supplies represent efficiencies in the support and infrastructure departments that can be achieved in the shortto mid-term range post-transaction. These efficiencies are often challenged by regulatory agencies, because hospitals are frequently unable to provide reasonable means to verify or quantify efficiencies savings pre-transaction. Clinical efficiencies have been proven to yield the largest efficiencies of merged firms, but the likelihood of achieving such efficiencies varies greatly, because they will often require further vetting and stakeholder support that is unattainable pre-transaction, leaving these efficiencies speculative to a degree.

Despite the challenges with identifying and quantifying efficiencies associated with mergers, BPOEs have been able to translate to lower costs of care for patients in two principle ways. First, the alignment of both administrative and clinical operations of two previously independent hospitals into a merged firm has provided a platform by which to reduce unnecessary, duplicative testing. Integrated electronic health records (EHR) and alignment of clinical programs across locations can reduce unnecessary utilization and subsequent out-of-pocket expenses for patients. Second, the merged firm’s efficiencies, driven by the cumulative effect of lowering the per-case costs of services by way of achieving multiple efficiencies, can be significant enough to prevent commercial plan price increases in a market that may be sought if the existing cost structures of the two independent hospitals were to remain in place.

Hospital-Medical Group Transactions

When hospitals acquire medical practices, it is often done with the good intention of fully integrating the practice(s) and supporting the transition to population health-based models. However, it is common practice for the acquired medical groups to continue to operate autonomously, with limited integration into the hospital system for efficiency gains. In fact, acquired medical groups frequently perform worse under a hospital-employed structure than when they were independent. Part of the reason is that integration is not easy, and most hospital systems are either in the early stages of population health transition or have not started, and thus put medical group acquisition at the forefront of their population health strategy. Consequently, acquisitions are occurring and often driving up prices in the market, because competition is being reduced. Larger systems have greater leverage to negotiate favorable reimbursement in the market, and the benefits of population health and value-based contracting are not yet realized.

The economics of medical practice change significantly when a physician transitions from independent practice to hospital employment. Not only are payer contracts negotiated by the hospital, which often has greater negotiating power, but cost structures may rise from more robust benefits structures, staff wage ranges, and physician compensation. Additionally, when operating as an independent practice, physicians have to cover their overhead expenses—there is no subsidy. When they are employees, their salary is negotiated with the hospital and may not reflect their productivity or contain incentives to keep expenses in check. Changes in reimbursement related to the site or type of service also occur when medical groups are acquired by hospitals— specifically, hospitals are able to charge facility fees or move ancillary services from medical practices to the hospital, thereby increasing costs. And, historically, hospitals have not efficiently managed physician practices overall.

Furthermore, the St. Luke’s-Saltzer decision shows that even when systems are taking initial steps toward value-based care, such as sharing an integrated EHR, it is not enough to justify an acquisition. And, although systems need aligned primary care physicians in order to grow their patient base and capture attributed lives under value-based contracting, the St. Luke’s-Saltzer case also shows that is not reason enough to promote acquisition of medical groups, because other alignment structures could produce similar results without harming competition. When considering an acquisition of a medical group in the post-reform era, hospital systems and their compliance team need to have a clear plan for how the acquisition will increase quality and reduce costs. This proposal must include consideration of not only how the action will reduce operating costs of the medical practice and make it more efficient, but also how the acquisition will reduce overall costs to the consumer. For that, a much more detailed financial impact analysis, managed care strategy, and operational implementation plan are necessary.

Merger and Acquisition Alternatives

Although M&As once dominated healthcare transactions, today many healthcare entities are looking for innovative affiliation models that do not require fully relinquishing their independence, but still offer operational efficiencies. Accordingly, new models are becoming more prevalent that allow these entities to seek partners that can satisfy their unique financial, operational, and quality needs, while still maintaining a level of control, in an effort to meet their key strategic objectives.5 The details of these alternative affiliation models will vary from transaction to transaction, but the basic principles of three increasingly common models will remain consistent.

Joint Operating Agreements

Within a joint operating agreement ("JOA"), the assets and governance of the two partners are not merged, but considerable management and financial authority is transferred to the joint operating entity. This model provides the platform for the partners to achieve significant efficiencies by way of the integration of operational and financial results, while also protecting the partners’ rights to religious directives and major corporate decisions, including the sale of assets. This model is highly complex in nature, but allows the joint operating entity to collectively borrow to satisfy the capital needs, undertake care model redesign to enhance quality, and achieve operational efficiencies that will drive cost savings for the partners. Operational efficiencies within a JOA can, in some instances, reach levels attainable through full mergers or acquisitions. In addition, the FTC does not deem these arrangements to be anti-competitive and thus, the two partners may be able to contract jointly.

Joint Ventures

In addition to JOAs,non-profits are also looking to pursue joint ventures to attain needed capital infusions and operational expertise while maintaining a reduced level of control. With the non-profit contributing its assets and business operations to the joint venture, a partner organization contributes capital to ascertain a majority share within the joint venture. The joint venture is then overseen by the majority stakeholder by way of a management contract, while the non-profit provides clinical services to the joint venture. This model yields moderate operational efficiency outside of consolidated administrative services offered by the majority stakeholder, and gives the non-profit the ability to ascertain the expertise and capital required to sustainably maintain operations to fulfill the community need.

Clinically Integrated Networks

Another model being pursued more frequently in light of the ACA are clinically integrated networks ("CINs"). This model provides the platform for healthcare entities to develop collaborative networks that support care coordination throughout the continuum while sharing in the infrastructure costs associated with managing a defined population. In a CIN the partners do not merge their assets or relinquish control of their organizations. Instead, the partners establish an alliance that maximizes the existing clinical expertise of their independent organizations, while sharing the costs of infrastructure and information technology required to participate in new accountable care payment plans and in preparation for population health. This model often maintains its own board and management team, which is directly responsible for clinically integrating the two partners and reducing cost (both operational and capital) through the achievement of clinical and operational efficiencies.


As health systems prepare for success in the new value-based world, M&As are often a major part of their strategy. However, federal anti-trust laws must be considered, not only in hospital-hospital transactions, but in hospital-medical group transactions as well. The BPOE and assessment of efficiencies must demonstrate the need for the M/A and how those efficiencies will lead to reduction in the cost of care, not just improvement in the system’s cost structure and bottom line or overall improved quality of care for the market. There are significant opportunities to improve the cost structure when organizations come together—those must be explored, verified, and ultimately, have a succinct implementation plan as well as a plan for translating savings to consumers. Further, alternative structures must be reviewed to determine if the stated goals and efficiencies may be accomplished in another manner. These considerations should be included in the due diligence phase of planning to assure ongoing compliance in a rapidly consolidating environment.

To download a PDF version of this article, please click the button below.

Hospital Consolidation, Mergers and Acquisitions, The Camden Group

  1. Carol K. Kane and David W. Emmons: “New Data on Physician Practice Arrangements.” The American Medical Association. Available at
  2. Edith Ramirez: “Anti-trust Enforcement in Health Care — Controlling Costs, Improving Quality.” The New England Journal of Medicine, December 11, 2014; 371:2245-2247. Available at
  3. Marlene Harris-Taylor: “Promedica ordered to drop St Luke’s: Court declares merger anticompetitive.” Toledo Blade, April 22, 2014. Available at 
  4. Jonathan L. Lewis, Lee H. Simowitz, and Sean T. Hartzell: “In the Wake of the FTC’s St. Luke’s Victory in Idaho, What Does the Future Hold for Hospital-Physician Acquisitions?” ABA Health eSource, vol 10, no.7. Available at
  5. Jonathan Spees: “Choosing the Right Affiliation Structure.” Hospital and Health Networks Daily, October 9, 2014. Available at

Mr. Klar is sa vice president with GE Healthcare Camden Group with over 12 years of experience in healthcare management. He specializes in strategic and business planning advisory services, including service line planning, master facility planning, and transaction work (e.g., mergers, acquisitions, affiliations, joint ventures). He may be reached at



Topics: Clinically Integrated Network, Mergers, Acquisitions, Hospital mergers and acquisitions, Brandon Klar, Mergers and Acquisitions

Charting a Path to Health System Efficiencies Following a Merger

Posted by Matthew Smith on Jun 11, 2015 9:43:24 AM

A business plan of operational efficiencies can help a health system achieve large-scale gains in cost performance and organizational alignment following a merger or an acquisition.

By Brandon Klar, MHSA, Vice President, GE Healthcare Camden Group (via the June, 2015 issue of HFM Magazine)

Healthcare reform is driving an increase in health system mergers and acquisitions. Almost without exception, these moves are billed as an opportunity to reduce costs and leverage scale to improve care delivery. Unfortunately, many merged organizations fail to fully realize the operational health system efficiencies envisioned before the transaction. Once select management positions are integrated and group-purchasing contracts have been consolidated, integration efforts often slow considerably or grind to a halt entirely. This pattern is seen both with true mergers, where two organizations are combined to create a new entity, and with transactions in which an organization acquires and absorbs another organization.

This failure to achieve the full potential of a merger or an acquisition carries two risks. First, incomplete integration can actually increase system costs, particularly when the combined organization creates a new layer of corporate oversight on top of the two merged entities. Second, poor integration can create trouble with regulators. The Federal Trade Commission, state attorneys general, and other agencies often approve health system mergers based in part on promised operational efficiencies. When these efficiencies fail to materialize, regulatory bodies can take action.

Please click the button below to continue reading this article on the Healthcare Financial Management Association's ("HFMA") website:

BPOE, Business Plan of Operational Efficiencies, The Camden Group

Topics: HFMA, Mergers, BPOE, Mergers & Acquisitions, Health System Efficiencies, Hospital mergers and acquisitions, Brandon Klar

Mergers & Acquisitions: An Opportunity to Align Charges Across a System

Posted by Matthew Smith on May 20, 2015 2:30:00 PM

With merger and acquisition (“M&A”) activity remaining steady, hospital systems have the opportunity to strategically align charge description master (“CDM” or “chargemaster”) prices to fit with their system-level corporate strategy, specifically targeting defensible pricing, revenue growth, or the managed care strategy.

Hospital M&A Activity on the Rise

Recent projections suggest that M&A in the healthcare industry will continue to rise in the next year. Given this trend, hospitals should seize the opportunity to align their chargemasters during the phase of integration, but also need to be aware of the risks associated with alignment.

M&A: A Great Opportunity to Align CDMs

Given a system with multiple hospitals in the same market with homogenous patient-payer mixes and service offerings, prices likely need to be aligned such that services provided at hospitals located close to one another are charging patients the same price for the identical good or service. Having prices that are aligned across hospitals in the same market where the hospitals are within reasonable cost-to-charge ratios refers to the practice of ‘defensible pricing’ and is very important as an increasing amount of states regulate that hospital chargemasters be available to the public. Furthermore, from a revenue perspective, as hospital systems grow larger, they may desire to renegotiate their payer contracts to support the changes in the organization. As a result, systems may be in a position to negotiate different reimbursement methodologies. Having all hospital systems on similar pricing schedules will support the overall managed care strategy for the newly developed system and may save the system from answering payer questions such as “Why does Hospital A charge so much more than Hospital B for the same service?” Furthermore, aligning the CDM across the system could lead to operational efficiencies from integration of functionality to support the CDM.

When Not to Merge CDMs

On the opposite end of the spectrum, healthcare systems with hospitals serving diverse patient populations or different markets may want to price goods and services differently across the system. Similarly, a hospital system with a specialty facility may benefit from having a separate CDM due to the nature of highly-skilled or unique services provided at that hospital. 

Systems with recently acquired hospitals need to closely evaluate whether aligning prices across a ‘system CDM’ is the best strategy.  Successful system-wide CDM strategies should be approached with clearly defined goals and revenue projections from day one. Without clearly defined goals and up-front due-diligence, hospital systems run the risk of lost revenue from reimbursement or patient leakage (ultimately, lost revenue) if prices are too high and patients seek services at a lower-priced competitor. As hospitals plan their post M&A integration strategies, the CDM should make the list of items under consideration.

Topics: Mergers, Acquisitions, Mergers & Acquisitions, Chargemaster, CDM

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