« Posts

M&A: Study Shows Slower Financial Improvement for Acquired Hospitals

Hospitals and health systems, looking for economies of scale and the potential for reducing the cost of care, have increasingly taken the merger and acquisition (M&A) route. In partnership with the Deloitte Center for Health Solutions, HFMA conducted a study of more than 750 merger transactions between 2008 and 2014 to examine how M&A affects a hospital’s performance.


The research showed that acquired hospitals, on average, experienced a post-transaction decline in operating margins, revenue and expenses that typically lasted two years.


There was no evidence that quality measures changed at acquired hospitals. However, immediate investments and additional staffing were sometimes required to improve quality at an acquired hospital, which can impact financial performance.


Taking an in-depth look at mergers that achieved more favorable results than others, researchers identified eight strategies and business practices related to integration planning and execution that correlated with achievement of higher margins. Survey respondents noted that M&A was more likely to succeed when leaders:


  • Developed a strong strategic vision for pursuing the transaction
  • Had explicit financial and non-financial goals
  • Held leadership accountable, often at the vice- president level, for integration efforts
  • Identified cultural differences between the organizations
  • Made clear and upfront decisions on executive and mid-management leadership
  • Aligned clinical and functional leadership early in the process
  • Followed best practices for integrating the acquired or merged organization into the parent organization
  • Implemented project management best practices, with tracked targets and milestones, from day one of transaction close until two years after


Compared with survey peers who participated in M&A transactions that did not achieve both cost and quality goals, the vast majority of executives involved in high-value transactions said the transactions included a defined operating model that had:


  • A strategic vision for the combined entity
  • Identified and validated areas for value capture
  • A strategy to realize revenue growth and cost-reduction opportunities
  • An understanding of key enablers


“Executives from organizations looking to be acquired should consider evaluating their internal culture long before a solicitation is sent to potential acquirers. They also should manage the timing of the solicitation process carefully and avoid informal, detailed M&A conversations with executives from health systems where they have relationships. Such conversations risk getting ahead of the board and community. For example, if one of these key stakeholders does not recognize the need to become a part of a larger health system, it could complicate the process.” (Hospital M&A: When done well, M&A can achieve valuable outcomes, Deloitte Center for Health Solutions and HFMA, 2017)


The study researchers interviewed executives who noted that conversations prior to reaching an agreement to merge or acquire should focus on difficult issues that tend to be avoided during pre-transaction discussions, due to concerns that they might derail the transaction. Potentially sensitive subjects include:


  • Determining the powers the acquired facility’s board will retain if it remains in place
  • Defining the roles that executives in each organization will play in the combined organization
  • Articulating decision-making authority at each level of the organization so that key projects aren’t negatively affected
  • Identifying high-level strategies for redistributing/rationalizing key service lines that could shift volume to or from the acquired facility


(Sources: “Research: Hospital Mergers & Acquisitions,” HFMA Weekly, January 5, 2018 and Hospital M&A: When done well, M&A can achieve valuable outcomes, Deloitte Center for Health Solutions and HFMA, 2017.)


For a link to the Deloitte/HFMA research, click here:




The Board’s Role in Leading Through Transition, iProtean, now part of Veralon’s latest advanced Governance course, now appears in your library. It features Karma Bass and Marian Jennings on issues such as dealing with uncertainty, new elements for evaluating the CEO, prudent risk-taking, critical questions, recommended practices, destination metrics and changing over time.



For a complete list of iProtean, now part of Veralon courses, click here.



For more information about iProtean, now part of Veralon, click here.