M&A activities allow healthcare organizations to strengthen or expand their value proposition, remain competitive, or position for the future. Evolving payment models and technology advancements have become increasingly significant forces behind healthcare M&A transactions and joint venture activity, as companies of all sizes are looking to vertical and horizontal integrations to increase economies of scale. Recent notable examples of these integrations include: Dignity Health and Catholic Health of California combining to form CommonSpirit Health, University of Pittsburgh merging with Pinnacle Health System to become UPMC Pinnacle, and CVS acquiring Aetna.
Once an opportunity or acquisition target is identified, conducting various types of due diligence (financial, legal, operations, technology, etc.) is a vital step in evaluating the viability of a potential deal. To truly understand and quantify the risks prior to finalizing a deal, due diligence must be as comprehensive and in-depth as possible on accelerated timeframes. Identifying where weaknesses or inefficiencies may exist can be crucially important to the success of the investment.
A Structured Approach to Due Diligence
A structured approach is needed to ensure that due diligence evaluations are successful in answering whether the identified opportunity supports the desired business goals. Documentation review, stakeholder interviews, and in-depth analysis should provide an understanding of processes, infrastructure, efficiencies, scalability, and potential shortfalls across core components of the target organization.
The figure highlights key steps and example focus areas that a structured operations and technology due diligence effort should include. If the target includes a marketed product, for example, additional analysis is needed to ensure its future viability – everything from the product strategy to its scalability must be analyzed for future risks. Due diligence activities should be constructed with short and long-term organizational objectives in mind to make the right information available to decision makers.
In comprehensive due diligence efforts, everything from security to organizational maturity must be reviewed and inspected. Operational and technical due diligence typically includes critical analysis of core and support functions, technology architecture and systems design, and the operations and IT teams that support them. Proper operational and technical due diligence can help validate that the target company has a unique and valuable technology asset and/or a highly productive and efficient operations team that will deliver on relevant business objectives.
Healthcare system consolidation is accelerating in the face of value-based care as many organizations seek to strengthen or diversify their market position. Consolidation helps these organizations broaden their care delivery, improve their administrative or technological capabilities, or position them as entrants to new markets. Thorough due diligence becomes ever more critical to mitigate risks that inherently come with these deals. A well-structured approach will help organizations be more successful across financial and strategic goals, and be better positioned to meet integration goals, timelines, and benefits.
crankfrog has worked with tech-enabled healthcare companies, including large health plans, pharmacy benefit managers, and data management solutions to add structure to due diligence activities. If your organization is considering a merger or consolidation, or has recently gone through a merger or consolidation and needs help with the organizational and technological hurdles that come with an integration, email us at firstname.lastname@example.org.
This is the second in a series of articles focused on merger and acquisition (M&A) activity in the healthcare industry. Read the first article in our series here.