GE Healthcare Camden Group Insights Blog

Top 10 Pivotal Factors for Successful Mergers and Acquisitions

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

Mergers and acquisitionsAs the healthcare landscape moves further down the tracks along the transformative shift towards accountable, value-based care, healthcare providers find themselves inundated with news and rumors of major players and competitors engaged in discussions surrounding acquisitions or affiliations. From the potential merging of three sets of health plan giants, to private equity players venturing further into the health system (e.g., hospitals, imaging, and physician practice) and post-acute space, the changing climate is undeniable and may prove for many to be inescapable.

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.

Mr. Valentine is president of The Camden Group, one of the nation’s largest healthcare management consulting companies with offices in California, Illinois, New York, and Massachusetts. With more than 35 years of healthcare consulting experience, he has considerable expertise in the areas of strategic planning, business transactions, mergers, hospital-physician relationships, and financial analysis. Mr. Valentine authors the annual “Top 10 Trends in Healthcare” for Trustee. He is a nationally recognized author and speaker on healthcare issues. Mr. Valentine is often quoted in Payers and Providers, Modern Healthcare, Los Angeles Times, and HealthLeaders, as well as other publications. He may be reached at svalentine@thecamdengroup.com or 310-320-3990.

Mr. Juberg is a manager with The Camden Group and focuses on clinical integration, transactions, and strategic and business planning for healthcare organizations. He has extensive experience with the development of ACOs (financial planning and funds flow modeling), managing Medicare Shared Savings Program applications, and implementing clinically integrated networks. He is also experienced in master facility planning, CMMI Innovation Center grants, medical group valuations, and community needs projections. He may be reached at djuberg@thecamdengroup.com or 310-320-3990.


Topics: Steve Valentine, Mergers, Acquisitions, Daniel Juberg, Mergers & Acquisitions, Mergers and Acquisitions

The Latest Thought Leadership from The Camden Group

Posted by Matthew Smith on Feb 11, 2015 3:57:00 PM

The Camden Group, Thought Leadership, Population Health, Clinical IntegrationEach month, thought leaders from The Camden Group share their expertise through original posts, articles, speaking engagements, and interviews.

Below are links to the top thought leadership shared recently by The Camden Group. 


Email Newsletters

►“Top 10 Trends and Implications for Medical Groups in 2015” by Mary Witt

►“Prevent 2017 Medicare Penalties Now” by Lucy Zielinski

►“Improving the Financial Performance of Your Newly Acquired Medical Group” by       Tawnya Bosko

Bylined Articles

In the News

Upcoming Speaking Engagements

To request more information about scheduling a thought leader from The Camden Group to speak at your organization's next event, please click the button below.

The Camden Group, Speaking Opportunity

Topics: Value-Based Care, Medicare, Medical Group, Deirdre Baggot, Daniel J. Marino, The Camden Group, Steve Valentine, Physician Services.

2015 Healthcare Trends: Continued Consolidation, Population Health

Posted by Matthew Smith on Jan 6, 2015 2:36:00 PM

2015 Healthcare TrendsIn its annual predictions for the year ahead, our colleagues at The Camden Group, one of the nation’s largest healthcare business advisory firms, released their outlook for 2015. The firm’s experts forecast continued provider consolidation and a drive to providing a better “value proposition” to the consumer and payer. Additionally, there will be a renewed focus on cost management and a steady stream of transactions that consolidate the acute, ambulatory, medical group and post-acute care components of the delivery system. And, keep an eye on the nation’s capital for further developments. The Camden Group takes a look at pain points, the bottom line, politics, opportunities, consolidation and acquisition, as well as insurance trends:

Pain Points: Show Me Where It Hurts

  • A few hot areas to watch that could impact hospitals: continuation of sequestration for healthcare expenditures, changes to the 340B drug purchase program and site-neutral payment reforms (e.g., imaging), including hospital-based clinics.
  • Inpatient volume will remain soft. Hospitals will continue to struggle as inpatient use stagnates and pressures build to find new ways to reduce expenses, grow revenue and improve access to capital.

The Bottom Line: A Need for Surgical Precision

  • Revenue reductions will continue to put a squeeze on the bottom line. Growth of public and private health insurance exchanges, sequestration (Medicare), state budget issues (Medicaid) and soft volumes will create challenges for the healthcare system.
  • The human factor: With salaries, wages, and benefits typically accounting for 50 to 55 percent of a hospital’s operating expenses, organizations will continue to reduce non-clinical personnel.
  • Also on the chopping block: non-core service expenditures, streamlining clinical and nonclinical processes, and refining compliance with group purchasing organizations and vendor relationships.
  • Information technology (“IT”) will gobble up a greater portion of capital expenditures. As population health management continues to grow and take hold of the “new approach” to healthcare in the U.S., IT will remain a major investment. The new spend will target: patient registries, analytics using population data, a data warehouse linking data from across the continuum and analytics using payer claims as well as internal data. Lastly, the drive to engage the patient will start with patient portals, wellness outreach, providing patient access to their medical record and, in some cases, telehealth as an element in this space.

Politics: What Happens in D.C. Doesn’t Stay in D.C.

  • The Republicans will hold significant influence on a national level with their control of Congress.
  • “With Republicans taking control of Congress – yet lacking 60 Senate seats or 67 seats to override a veto – parts of ‘Obamacare’ are going to change,” says Steven T. Valentine, president of The Camden Group. “A full repeal of the Affordable Care Act is highly unlikely; however some parts will be eliminated and others likely watered down. At the end of the day, most health systems and medical groups should continue to move ahead with developing population health management capabilities in response to the need to demonstrate value.”
  • President Obama stands ready to veto policies and legislation he does not support and is ready to use his executive order powers to extend his influence.
  • The public insurance exchanges may find strong headwinds due to the Republicans carving out some pieces, thereby reducing the population accessing the exchange. The wildcard to watch: the Supreme Court has agreed to hear the debate on issues with the subsidies; expect a decision in June.
Opportunity Knocks
  • Clinicians have developed and are using new care models and economic incentives to reduce resource consumption. The growth of the Patient-Centered Medical Home, episodes of care management (e.g., co-management and bundled payment arrangements), accountable care organizations (“ACOs”) and clinical integration will all continue to grow and expand.
  • Population health will continue to be the focus for many organizations. The growth of ACOs in both numbers and population reflects this trend. Employers will continue to demand better value for their healthcare dollars. Medical groups, hospitals and health systems will be required to invest more resources and money into the infrastructure build-out to manage the populations’ health. As a result, expect to see IT spend that will focus on: EMR interfaces, data warehousing (collection) and analytics. Providers that want to embrace population health will need to adopt a payment model that rewards them for delivering a better “value” to the patient and payer.
  • Competition between healthcare providers will focus on capturing a defined population. Figure 1, below, identifies highest priority access points. The trend is that health systems and hospitals are adding hospitals, clinics, health plans, direct contracts with employers, physician practices and ambulatory sites to their continuum of care delivery system/network.Pyramids of success resized 600
  • Population Health, The Camden GroupTransparency will grow, albeit ahead of the consumer’s interest in using the information. Numerous websites, states and health plans offer quality and price information. All competitors play by the same rules, and the public sees the same data, because that is all they have. Medicare, Medicaid, health plans and proprietary databases all provide information on quality, satisfaction and cost. Providers will have to dedicate resources to provide a more standardized and reliable data set to offer more accurate and useful information.
  • Physician resources: As physicians in the Baby Boomer generation start their long-delayed retirements (their investments have returned, and their practice is at peak value), hospitals and medical groups will identify opportunities to staff clinics, urgent care centers and physician practices with these newly retired physicians willing to work part-time for someone else or on “fill-in” shifts.

Consolidation and Acquisition: Shaking Things Up

  • Consolidation will continue at a strong pace and spread. Consolidation of imaging services will accelerate this year. Radiology benefit managers, pricing transparency, higher out-of-pocket co-pays, health plan contracts that redirect business and cut-throat pricing will pressure the profitability of these centers. Additionally, expect consolidation in the postacute care world as referral patterns change and ACOs, clinically integrated networks and health plans alter business and clinical relationships.
  • Hospital and physician alignment will continue to be a top priority for hospitals. In the never-ending quest to capture a greater population, health systems and hospitals will continue to acquire medical groups and physician organizations.
  • Medical group consolidation: Of note is the acquisition of medical groups and physician organizations by other medical groups; this trend should accelerate in 2015.
  • Academic medical centers will enter more markets to acquire medical groups and clinics and provide more access points to their system.
  • Other opportunities: Additionally, we have seen a steady increase in co-management agreements, bundled payments, ACOs and clinically integrated organizations focused on aligning the economic interest of all parties. Expect all of these alignment vehicles to continue to increase and become more sophisticated in their economic incentives, trying to produce greater value.

Insurance Trends: More Marketplace Disruption

  • Direct employer contracting and private insurance exchanges will be a small but growing trend, led by the continued growth in high deductible health plans.
  • Public insurance exchanges will have little new impact this year compared to last year.
  • High deductible PPO products will continue to grow.
  • Commercial HMO enrollment will continue its slow decline.
  • Medicare Advantage enrollment will continue to grow as the population ages in.
  • Employers also will increasingly add value to their healthcare benefits through the addition of wellness programs, healthy lifestyle, education and prevention.

In conclusion, management should focus on these trends and be prepared for some unexpected twists through 2015. Everyone will be looking for better value, and the pressure is on health systems, hospitals and doctors to deliver.

Population Health, Practice Management, Clinical Integration

Topics: Clinical Integration, Population Health, HIT, Health IT, Information Technology, Healthcare Consolidation, Steve Valentine

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