Accelerating healthcare M&A revenue optimization through digital health integration

After a 23% downshift in the volume of healthcare mergers and acquisitions (M&A) in 2022, many are asking if the downward trend is permanent, or just a correction following a record breaking year in 2021. The answer from analysts at PWC, Bain, and Kaufman Hall is nuanced, but following an uptick of transactions in Q4 2022, there is agreement that despite macroeconomic headwinds and increasing regulatory scrutiny, M&A activity will trend upward in 2023 due to ending pandemic support, labor shortages, and increasing interest from private equity.

M&A drivers

Ending pandemic support

With the forthcoming end of national emergency and public health declarations, the significant government support to healthcare during the pandemic will end for most healthcare organizations. Without this support, there may be an increase in distressed deals.

Staffing shortages

Traditional healthcare outlets face increasing competition for human resources from technology companies, national health plans, and retail who are making entrances into the care delivery space. Further, since COVID-19, many healthcare professionals have exited the field, and are continuing to exit. Organizations may look for roll-up opportunities to combat labor scarcity.

Private equity

Private equity (PE) has shown continued interest in consolidating specialty providers and services groups. PE deals in ophthalmology and gastroenterology are thriving and investment is now expanding into other fragmented spaces included cardiology, orthopedics, and elderly care.

With M&A activity forecasted to rise, provider organizations will be looking for strategies to get the most out of transactions. The overall success of healthcare M&A rests heavily on the success of IT integration. Deloitte estimates that IT accounts for nearly 70% of all M&A synergies. Failed IT integration can result in higher costs and/or lower than expected combined value.

Choosing the right path to IT synergies

Several factors will be considered when choosing an M&A IT integration path, including the size and complexity of the organizations involved, the compatibility of the existing electronic health record systems (EHRs), and the strategic goals of the transaction. In most cases organizations will need to choose between 1) full consolidation of electronic health record systems (EHRs), 2) parallel EHR operations, or 3) integration of digital health across EHRs. While there is certainly no one-size-fits-all solution, in most cases digital health integration will accelerate the realization of M&A synergies while also reducing operational disruptions.

1. Full EHR consolidation

Consolidating the EHRs of acquired entities can drive to the full realization of M&A synergies, but some may be surprised to learn that it is not always necessary, and may even cause further friction in an already uncertain post-merger environment. In fact, nearly 40% of acquired organizations do not switch EHRs post-integration. Switching EHRs is expensive, causes significant disruption to operations, and adds burden to already overwhelmed clinicians. In most cases it will take a year or more to implement and fully realize improvements.

2. Parallel EHR operations

Parallel EHR operations are also not a viable option for most organizations. While it may limit change and burden for clinicians, IT, finance, and operations teams are likely to make a quick exit if they are asked to manage duplicative core business processes (eg. patient intake, coding, and billing) across multiple disparate EHRs.

3. Digital health integration

A digital health integration strategy postpones significant operational disruption and costs, allowing a full EHR consolidation to be approached more thoughtfully in the future (if and when deemed necessary). Rather than integrate core patient systems, this strategy instead prioritizes the integration of critical digital health applications. This approach has become increasingly popular with PE firms who are active in the provider space. It allows organizations to more quickly achieve M&A synergies as they grow, integrating newly acquired practices into core operations in significantly less time than attempting EHR consolidation.

Summary of M&A IT integration approaches

Implementing digital health integration strategies

Most organizations that choose a digital health integration strategy will place a priority on integrating a revenue cycle management application as a start, ensuring their core financial operations are streamlined and coordinated across practices using disparate EHRs. With back office functions stabilized, organizations may then seek to increase provider efficiency by integrating remote patient monitoring or telehealth apps across the enterprise. Finally, organizations may also look to channel clinical data from their various EHRs into a single cloud repository to enable advanced analytics that will help them identify additional opportunities to streamline operations.

Digital health integration is a less complex approach to achieve M&A synergies, but implementing it can come with significant challenges. While nearly every EHR has an Application Programming Interface (API) that can enable data exchange to digital health applications, the data they transmit and use cases they support may be limited. Interface boxes are also an option, but they typically require significant healthcare data and integration expertise to enable and maintain each connection. Resources that many lean M&A organizations simply do not have, and would take months to acquire. Further, these connections, once built, are not reusable. The work must be done and re-done for each EHR instance, even if acquired practices use the same EHR vendor. Larger M&A-formed enterprises may have dozens of EHRs to integrate, each with its own unique authentication methods, communication protocols, and data formats.

Most organizations will need third party help to implement this strategy. Not all partners will have the technology or experience to deliver quickly or scale through rapid growth, at a competitive price.

Case study: US Heart & Vascular

US Heart and Vascular (USHV) is rapidly growing through the acquisition of independent cardiology practices. Their goals include stabilizing operations across practices and then creating new value through the introduction of a variety of new services including ambulatory surgery, and urgent care services. USHV is working with Redox to integrate digital health applications across 8 disparate EHRs in 75 locations.

USHV chose Redox to help them execute a digital health integration strategy, beginning with the connection of a centralized RCM application. This allows them to quickly offload financial management and billing tasks from clinicians in the individual practices so they can focus on patient care. Nothing will change for the clinicians on the front end, but administrative functions on the back end will be more efficient with a single RCM vendor.

While USHV is working on table stakes to start, future plans include increasing provider efficiency with the integration of remote patient monitoring (RPM) and practice analytics applications.

Want to hear more about the USHV story? Listen to our podcast with Chief Information Officer, Cheryl Rodenfels.