IT plays an important role in healthcare mergers and acquisitions. There are six key IT considerations: (1) IT becomes a vanguard to field questions and help merge cultures; (2) transition service agreements outline support during conversions; (3) roles and responsibilities must adapt to changes; (4) beyond EHRs, many specialty systems require assessment; (5) conversion and consolidation strategies range from replacing to integrating systems and standardizing data; (6) a total cost of ownership analysis determines financial impact over multiple years. Proper planning across these six areas helps IT support organizational integration.
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Health System Mergers & Acquisitions: Considerations for IT
1. Health System Mergers and Acquisitions:
Considerations for IT
Presented By:
Clifton Jay, President
Mary Ann Keane, RN, MS, Executive VP/COO
2. Health System Mergers & Acquisitions - October 2018 1
1990 Massachusetts S Corp.
MBE Certified
Dedicated to Healthcare
Over 100 clients
Independent & Knowledge of
Major Software Products
3. Purpose & Objective
– Educate and provide understanding on the importance and impact that IT has on
the wave of healthcare provider mergers, affiliations and acquisitions
– The focus is on healthcare systems (hospitals and ambulatory practices), not
pharma or payer such as CVS/Aetna
Intended Audience - Health system leadership
– IT
– All Disciplines
What Attendees will Learn
– Overview of the merger, affiliation, acquisition landscape and trends on news-
worthy examples
– What IT needs to consider in an M&A situation
– “Over-the-counter information” on merger examples (the challenges)
– Tutorial on: Six IT Considerations for an M&A
Expected Takeaway
– Bring knowledge and perspective back your health systems
Today’s Program
Health System Mergers & Acquisitions - October 2018 2
4. Hospital and Health System M&A Activity, 2000-2017
https://www.kaufmanhall.com/sites/default/files/2017-in-Review_The-Year-that-Shook-Healthcare.pdf
By the Numbers
Health System Mergers & Acquisitions - October 2018 3
5. Patterns and Trends of Healthcare Mergers &
Acquisitions
Health System Mergers & Acquisitions - October 2018 4
Not-for-Profit versus For-Profit as Transaction Targets, 2012-2017
https://www.kaufmanhall.com/sites/default/files/2017-in-Review_The-Year-that-Shook-Healthcare.pdf
6. Not-For-Profit Health System Mega-Mergers
Health System Mergers & Acquisitions - October 2018 5
Will be the largest NFP health
system in the U.S. at 139 hospitals-
$28.4B in revenue
Revenue $1.5-2 Billion
Combined revenues over $5
Billion- second largest health
system in the state of MA
7. Divestitures
Health System Mergers & Acquisitions - October 2018 6
As of March 2018- received over $550M of cash from hospital
divestitures. Goal of $900M to $1B proceeds from total
divestitures.
CHS sold 40+ hospitals in the past 18 months-
following several difficult years of shouldering the
debt of FL-based HMA (Health Management
Associates )in 2004
8. Public Healthcare Companies
2017 10 of 31 total FP acquisitions involved publicly traded companies and 9 included HCA
HCA growth doesn’t seem to be slowing down
Recent notable transactions
– Purchase of Memorial Health in Savannah
– Purchase of 3 Tenet Hospitals
– Plans to acquire Mission Health System in Ashville, NC
Private Healthcare Companies
Now the largest private company
Acquired 8 CHS hospitals
Acquired 16 IASIS hospitals
For-Profit Acquisitions
Health System Mergers & Acquisitions - October 2018 7
9.
10. Health System Mergers & Acquisitions - October 2018 9
HIMSS Enterprise Information Systems SC Merger & Acquisition Framework
Define target audiences and engage keystakeholders
Assess informationneeds
Define key messages and appropriatechannels
Determineappropriate timingfor messaging
Developfeedbackmechanisms
Explorethe use of socialmedia
DevelopFAQ’s
Define newbehaviors
Develop change management
plan including plans for cultural
harmonization
Develop high level project
timelines
Define projectperformance
metrics
Define adoptionmetrics
Define team roles and
responsibilities(internal and
external)
Develop high level training
plans
Stakeholderidentification and
analysis(includeunions,
physicians)
Identify internalchange
agents‐ changeambassadors
Develop stakeholder
management plan (including
issue trackingandresolution
planning)
Define survey and
engagementforums
Develop governance
structures
Develop resourceplan,
includingInternal and external
staffingneeds
Consider impactof strategic
objectives acrossIT initiatives
Assessapplication
portfolios
Assessinfrastructure(s)
Inventory IT contracts
Assess life‐cycle
requirements for allsystems
Assess InflightProjects
Assess ITleadership
Assess CultureRelatedto
IT
Engage in financial
assessmentsandmodelling
Analyze workflowand
integrationimplicationsof
M/A
Assess factorsthat may
impact scopeor timing of
M/A or M/A projects
Assess legal implicationsof
M/A
Define workflowteamsand
structures
Define “as‐is”processand
workflows
Conductorganizationalrisk
assessment
Develop IssueTracking
Methods
Conductoperationalimpact
analysis
Conductjob impactanalysis
Createnew job roles&
responsibilities
Communication
Vision,
Leadership &
Goals
Analysis & Due
Diligence
Stakeholder
Management
Planning
Execution and
Change
Management
Business &
Operational
Readiness
DefineVision
Articulatebusiness
case for change
Articulatecurrent
state/futurestate
expectations
Articulatesuccess
criteria
Articulatehigh level
workflowexpectations
Define pre –M&A
team roles and
responsibilities
Source: Adapted from HIMSS Mergers & Acquisitions Technology Framework,
Produced by the HIMSS Enterprise Information System Steering Committee
11. IT Plans for M&A
Key Topics
1. IT Strategy
Centralized Model vs
Local Systems
2. Tactics
Migrate over time
Rip & Replace
3. IT Governance
4. Data Governance
Considerations
Value Proposition
Integrated Patient Record
Patient Cross-over/Referrals
Population Health
Economies of Scale
Priorities – ERP? EMR?
Existing Contracts
Life Cycle/Aging
Archive/sunset
Needs to be somewhat consensus
based
Workgroups - IT, ERP, Clinical EMR,
Ancillaries, Revenue Cycle
Standardization of data for metrics,
reporting and benchmarking
Health System Mergers & Acquisitions - October 2018 10
12. IT Plans for M&A (2)
Key Topics
5. IT Organization & Resources
6. Timeframe
7. Funding & Cost Allocation
Considerations
For System-level & Local IT:
IT Leadership/CIOs - Revisit
roles/responsibilities
Applications
Technology
Customer Service
Cultural Differences
Big Bang or Stagger?
Multiple Years
Capital investment
TCO for capital and operating by FY
Method for cost allocation by facility
and providers
Health System Mergers & Acquisitions - October 2018 11
13. IT Strategies Are All Unique
Health System Mergers & Acquisitions - October 2018
Hackensack (Epic)
Meridian (Cerner/Siemens)
(Meditech)
BI Lahey Wellforce
Hackensack
Meridian
Great Lakes
1. IT Strategy
2. IT Tactical Plan
3. IT Governance
4. Data Governance
5. IT Organization
6. Timeframe
7. Costs
BIDMC (custom)
BIDMC Community (Meditech)
Lahey (Epic)
Mt. Auburn (Epic)
A. Jaques (Meditech)
NE Baptist (Cerner Soarian)
Lowell (Cerner)
Tufts NEMC (Cerner/Siemens)
Melrose (Meditech)
Kaleida (Cerner)
Erie County (3-Meditech, CPSI)
So. Tier (4- Meditech)
Source: “Over the counter” information
on Hospital Information System Vendors
14. IT Assessment & Planning – M&A
Health System Mergers & Acquisitions - October 2018 13
MAJOR FACTORS PLANNING FOR IMPACT
Software Licenses for common and specialty local software
Technology Infrastructure Common data centers, virtualized servers, network, desktops
Operational Define common and local operations, e.g. consolidated business
office, lab, supply chain, accounting, HR, etc.
Implementation What’s common, e.g. clinical content, workflows, alerts, niche
systems, charge master, etc.
Interfaces, Data Conversions,
Archives
MPI’s, patient clinical record and data, notes, accounts receivable….
Training Reduced productivity
Customer Service Common help desk
Organization & Staffing Revamping to blend of consolidated staff and local staff
Governance Common and local
Cost TCO for capital and operating expense
15.
16. Acquisitions are Similar to Mergers
Asset Purchase Agreement
Deal Close
Tax ID’s and Provider Numbers
Contracts – Managed Care, Services, Software, Support, GPO, etc.
Six Things IT Should Know for M&A
1. IT Becomes a Vanguard
2. TSA
3. Who Does What?
4. Software - Beyond the EHR
5. Conversion & Consolidation
6. Total Cost of Ownership (TCO)
Acquisitions
Health System Mergers & Acquisitions - October 2018 15
17. Consolidating IT is one of the first merger/acquisition activities, so IT is sometimes
put in a position of “fielding” questions beyond their purview. Preparing IT can help
in assimilating organizational cultures and communications; and defining the future
IT organization is beneficial to melding the organizations.
How to prepare the IT staff on fielding questions for things that
Are yet to be determined
Way outside of “their pay grade,” understanding and purview
What methods or vehicles of communication can help?
Leadership/Management
Physicians
Employees
How could an organization plan for melding the organizational cultures?
How to handle the anxiety about job security, re-organization, responsibility
changes, etc.
#1 - IT Becomes a Vanguard
Health System Mergers & Acquisitions - October 2018 16
18. Acquisitions often include a TSA because switching core systems can extend beyond
the close. There are also systems that will be converted at the close, e.g. payroll,
website, regulatory reporting, security, email. Read the TSA carefully.
Can a TSA be avoided?
Merger vs. Acquisition
Could the services be bought directly with service providers vs. the facility
seller?
What other operational or contractual services relate to the IT TSA?
Central business office
Pre-arrival services
Coding, transcription, etc.
How to synch up the business and IT TSA
How long do you need for a TSA?
Conversion time for new system
Business/operations
Contracts
#2 - Transition Service Agreement (TSA)
Health System Mergers & Acquisitions - October 2018 17
19. Operational procedures and responsibilities will differ between organizations and in
some cases corporate; be prepared for adaptation – either system or process or
both. Examples: CBO, pre-arrival services, GPO, payroll processing.
Determine what changes will happen to Roles & Responsibilities
Changes in job descriptions
Changes in department responsibilities
Changes in authorized abilities to do tasks
Role-based security
Procedures and operations
Are there procedural and operational standards at one organization that
will “rule” and endure?
How to ID the impact of major operational changes, e.g. combining
departments, e.g. CBO, lab, or functions, e.g. radiology readings
Coverage – normal and after-hours
How does IT figure out security and roles-based access for things that are
undefined, and maybe at the last minute?
#3 – Who Does What?
Health System Mergers & Acquisitions - October 2018 18
20. The spotlight for the merger of IT is mostly on the core inpatient and ambulatory
systems - EHR, revenue cycle and ERP. We have found that the specialty/niche
systems can be a large number (~200) and may require re-contracting for licenses
and subscriptions.
Core Systems, e.g. EHR, PFS, and ERP
Who and how to decide whether to keep or rip/replace?
When?
Specialty/Niche/Departmental Systems
How to inventory the various niche systems and shadow IT department
system? Under an acquisition, how to handle access and understanding
For specialty/departmental systems, who decides on whether to Keep or
Replace?
Interfaces – How to determine a moving target?
Contracts – Who’s going to track down all these scattered contracts?
#4 - Software - Beyond the EHR
Health System Mergers & Acquisitions - October 2018 19
21. Prioritize contract needs and completion based on timeline and work effort
Definitions of tiers based on priority (1-high, 5-low)
1. Interfaces/application implementation critical to Epic go-live
2. Interface / applications implementation non-critical to Epic go-live
3. Non interfaced, clinical application, and conversions
4. Contract re-extensions or extension only, post-Epic implementations
5. Data archive projects, terminations, projects completed day-one, Epic
replacements (assuming build in Epic project only and not conversions
related to the application or contract extensions required pre-Epic)
Example - Software - Beyond the EHR Strategies
Health System Mergers & Acquisitions - October 2018 20
22. Workstreams, TCO, and Checklist
Health System Mergers & Acquisitions - October 2018 21
23. IT strategies vary depending upon several factors, e.g. existing systems, organizational
strategy for standardized deployment, geographic/patient synergy, and capital
requirements. Tactics can range from cloning existing systems to full system
implementations and conversions. Don’t forget patient identifiers and clinical data.
Check standards and compliance for technology and security. Re-provisioning can be a
tedious job.
Approach & Options
Rip/Replace
Keep – What about integration as a health system for (a) operational systems,
and (b) data aggregation?
Does your organization have “standard issue” systems – EHR, PFS, ERP, other
administrative and infrastructure?
What about “content” standards and tools, e.g. clinical content, or claim scrubber?
Governance – Will there be common governance, e.g. IT, medical informatics.
#5 - Conversion & Consolidation
Health System Mergers & Acquisitions - October 2018 22
24. Security Standards – What about security standards that “should” be
standardized?
Timing and Upgrades – What are the timing issues for upgrades, etc. for both
sides?
Strategies for data conversion – patient records, financial records, even email?
What about sunsetting and archiving for outgoing systems? Keep it spinning,
view only, archive?
Will there be procedural and operational consolidations, e.g. ROI, central
laboratory, CBO, supply chain?
#5 - Conversion & Consolidation – cont’d
Health System Mergers & Acquisitions - October 2018 23
25. As with all investments a TCO is a must. Determine the incremental costs of IT for
the various phases of consolidation/ conversion. Also be mindful of differences on
where IT costs are budgeted – user areas or IT.
Do you invest in IT for a hospital or practice that you might close, sell, or re-
configure?
#6 - Total Cost of Ownership (TCO)
Health System Mergers & Acquisitions - October 2018 24
26. Example – TCO Tracking Format
Health System Mergers & Acquisitions - October 2018 25
Project Budget Tracking by
Month & To Date
COMMITTED SPEND
Committed
To Date
Budget Budget (Overage)/
Reserve
Sum of PO Amount
2018 Grand Total Grand Total
Jan Feb Mar Apr May Jun FY18 Total 5 Years
CAP 18422
2.00 Other Systems $428,080 $428,080 $428,080
3.00 Software - EHR $3,860,000 $561,517 $1,392,234 $1,130,968 $1,456,423 $8,401,142 $6,956,053 $24,334,253 $15,933,111
4.00 Implementation $7,036,050 $64,000 ########### $698,957 $26,453,207 $10,722,725 $56,835,580 $30,382,373
6.00 IT Infrastructure $868,967 $92,242 $800,512 $2,695,251 $48,008 $4,504,980 $18,330,416 $32,385,162 $27,880,182
7.00 Labor - Ongoing Costs
8.00 Contingency $2,750,000 $5,500,000
CAP 18422 Total $7,905,017 $3,924,000 ########### $2,192,746 $3,826,219 $2,203,388 $39,359,329 $39,187,274 $119,483,075 $80,123,746
OPX
2.00 Other Systems $582,057 $582,057
3.00 Software - EHR $88,891 $197,261 $144,215 $2,340,300 $2,770,667 $37,995 $19,269,151 $16,498,484
4.00 Implementation $452,200 $80,000 $532,200 $10,576,800 $10,044,600
6.00 IT Infrastructure $486,838 $194,320 $346,670 $1,027,828 $2,078,258 $3,792,749 $2,764,921
7.00 Labor - Ongoing Costs $424,436 $86,478 $160,950 $671,864 $490,000 $7,333,222 $6,661,358
8.00 Contingency $603,487 $1,664,223
OPX Total $452,200 $88,891 $1,108,535 $425,013 $2,927,920 $5,002,559 $3,209,740 $43,218,201 $36,551,419
Grand Total $8,357,217 $3,924,000 ########### $3,301,281 $4,251,232 $5,131,308 $44,361,888 $42,397,014 $162,701,276 $118,339,388
BUDGETED & ACTUAL SPEND
2018 To Date Total Budget
Jan Feb Mar Apr May Jun JAN - JUN 18 FY18 FY18-22
PROJECTED SPEND (BUDGETED)
Capital $8,172,409 $1,904,455 $3,994,853 $2,163,955 ########### $5,114,789 $34,887,298 $39,187,274 $119,483,075
Operating $192,216 $192,216 $192,216 $243,216 $294,216 $532,022 $1,646,102 $3,209,740 $43,218,201
TOTAL $8,364,625 $2,096,671 $4,187,069 $2,407,171 ########### $5,646,811 $36,533,401 $42,397,014 $162,701,276
ACTUAL SPEND
Capital $440,329 $5,407,785 $6,172,491 $4,869,607 $16,890,212 $16,890,212 $16,890,212
Operating $9,113 $55,510 $71,003 $762,427 $323,113 $1,221,166 $1,221,166 $1,221,166
TOTAL $9,113 $495,839 $5,478,788 $6,934,918 $5,192,720 $18,111,378 $18,111,378 $18,111,378
VARIANCE
Capital $8,172,409 $1,904,455 $3,554,524 ($3,243,829) $7,364,345 $245,182 $17,997,087 $22,297,062 $102,592,863
Operating $192,216 $183,104 $136,706 $172,213 ($468,211) $208,909 $424,936 $1,988,574 $41,997,035
TOTAL $8,364,625 $2,087,559 $3,691,230 ($3,071,617) $6,896,134 $454,091 $18,422,023 $24,285,636 $144,589,898
Tracking
Committed Spend
Actual Spend
27. Thank you
Mary Ann Keane – makeane@healthnetconsulting.com
Clifton Jay – cliftonjay@healthnetconsulting.com
Q&A - Discussion
Health System Mergers & Acquisitions - October 2018 26
Editor's Notes
Hospital-announced transactions slowed in Q 2 2018
Acquisitions by 16 not-for-profit organizations versus 5 for profit organizations.
Not for profit goal – “expand organizational base and presence to expand to larger geographical areas.”
https://www.kaufmanhall.com/news/hospital-merger-and-acquisition-activity-continues-rise-according-kaufman-hall-analysis
For profit divestiture decrease in Q 2
CHS, HCA, Tenet, and physician owned hospitals
CHS announced three deals (OK, FL, and WV) with a not for profit acquirer.
Q2 divestitures included 37% of transactions
Q1 divestitures included 44% transactions.
For profit acquisition decrease in Q 2
RHCC Healthcare Partners was the only for profit acquisition.
Physician medical group acquisitions remained steady for Q 2
Totaled 53 in Q2 and 55 in Q 1
http://www.hfma.org/Content.aspx?id=61506
2018 Patterns and Trends
“Desire to better integrate care across the continuum and manage patient care more efficiently and effectively was ranked as the strongest driver of M&A activity” – Premier Survey
Financial impacts discussed by HFMA
Navigant analysis
104 largest health systems in U.S. found declines of greater than $100 million from FY15 to FY17
Moody’s Investor’s Service
Margins for not-for-profit and public hospitals below levels of the 2008-09 recession
American Hospital Association analysis
Increase in hospitals with negative total and operating margins in 2016 (considered recession-era levels)
Leadership at health systems “contemplating new partnerships for new capabilities, lower overall cost structure, and stay relevant in the face of well-funded new with the competitors.” – Kaufman Hall
https://www.kaufmanhall.com/resources/blog/defining-endgame-consolidation-lessons-banking
http://www.hfma.org/Content.aspx?id=61506
https://www.premierinc.com/downloads/c-suite-survey-drivers-for-merges-and-acquisitions-7-18.pdf