Post-Merger Integration in Healthcare: Best Practices and Challenges
Contrary to common belief, the success—or failure—of a merger and acquisition (M&A) deal hinges on what happens after the deal is made. While most organizations anticipate smooth market expansion and revenue growth following the deal closure, this is rarely the case.
One key aspect that’s often overlooked is integration processes, both in terms of operations and culture. Integration issues are so critical that almost 50% of mergers “fail to meet expectations due to organizational issues” like cultural differences and changing operating models, according to a study by global consultancy McKinsey & Company.
Similarly, 65% of acquiring companies said that cultural issues hampered the progress of their operations, according to an M&A-integration-focused survey by consultancy house PcW.
These findings are no surprise given that 58% of entities lack a specific approach to assessing and integrating culture in their deal, as per a small-scale study of 123 companies by global consultancy Aon Hewitt.
This oversight is particularly critical in the healthcare sector, where integration encompasses not only financial and operational considerations but also clinical protocols, patient care standards, and regulatory compliance.
Research indicates that effective post-merger integration (PMI) strategies are the key differentiator between successful healthcare M&A transactions and those that fail to deliver anticipated value.
Understanding and implementing proven PMI best practices can transform potentially challenging mergers into strategic advantages that enhance both organizational performance and patient care
7 post-merger integration challenges to consider
PMI is the process of combining two entities following an M&A deal. It specifically focuses on aligning business cultures, technologies, systems, and operations, as well as maintaining top talents after the deal is complete.
When a company enters an M&A deal, business owners often focus on the numbers and forget other crucial factors, such as the human resources element, and internal restructuring, among others.
The following are the most common challenges in post-merger integration and the top reasons many M&A deals fail.
1- Operational Integration
This is perhaps the key to the success of any healthcare M&A. It presents unique challenges due to the complexity of merging clinical and administrative systems while maintaining uninterrupted patient care.
The ability to successfully merge the processes, operations, supply chain, EHR systems, clinical workflows, and many other aspects into one efficient system. All while ensuring regulatory compliance and quality standards.
The merger process extends beyond technical aspects to include change management, requiring careful coordination of medical staff and administrators.
Moreover, the success of the M&A depends on balancing operational efficiency with the paramount goal of maintaining patient care quality and safety.
2- Cultural challenges
A healthy corporate culture drives success for any organization. Companies that neglect culture following a merger or acquisition are likely to see an employee exodus with the business stalling and ultimately failing.
If the two healthcare entities have vastly different cultures, the resulting entity will struggle to find and maintain a balance. Issues will arise to attract, retain, and integrate talent.
3- Technology & System integration
Every hospital or healthcare facility uses a separate digital EHR system to manage its operation. An entity resulting from an M&A will need to determine what is the better system that optimizes healthcare costs, provides adequate data for decision-makers, and superior patient care. Furthermore, system integration may result in unforeseen expenditures.
4- Organizational restructuring
Another challenge to the success of M&A deals is the organizational restructuring following the deal completion.
The challenge lies in identifying and preserving centers of excellence while eliminating redundancies, all without compromising patient care quality.
This process often involves sensitive decisions about leadership positions, reporting structures, and governance models. The restructuring must also account for the unique aspects of healthcare delivery, such as maintaining specialized service lines, managing medical staff privileges, and ensuring appropriate clinical oversight across expanded facilities.
Also Read: Before the Decision: 10 Steps to Developing an M&A Strategy
5- Talent retention
Retaining top talents during and following an M&A deal is one of the most critical challenges organizations struggle with.
Some roles may become redundant, resulting in hundreds of layoffs. Meanwhile, for the acquirer, employees may be burdened with new responsibilities resulting in burnout and employees leaving the company.
Also Read: 8 Mental Health Initiatives for a Better Work Culture
6- Communication challenges
Miscommunication costs US businesses up to $12 trillion each year, according to US-based Grammarly’s 2024 State of Business Communications Report.
In the same vein, American multinational analytics and advisory company Gallup reports that only 13% of employees “strongly agree” about their organization’s leadership’s ‘effective communication.
When it comes to M&A deals communication is an even bigger challenge. Especially when it comes to those in the healthcare sector where disclosures and rumors can negatively impact the deal.
Both internally, among employees and teams, and externally, with media outlets and departments in the merging or acquiring company.
7- Regulatory compliance
Especially with entities existing in different markets, regulatory compliance is a key aspect to consider.
Due to the sensitive nature of healthcare organizations, including patient records, financial information, and insurance claims among others, there are many regulatory procedures and requirements to be considered.
Regulatory compliance challenges can also emerge for one of the entities the current entity oversees. These challenges can stall an M&A deal and can negatively affect the post-merger integration process.
Also Read: Infographic: The Impact of AI on Healthcare
8- Financial integration
Financial integration in healthcare mergers presents unique complexities that extend far beyond traditional corporate consolidations.
Regular companies deal with combining revenue cycle operations, payer contracts, and billing systems while maintaining cash flow and regulatory compliance.
However, healthcare facilities have to reconcile different charge masters, pricing strategies, and reimbursement models across merged entities.
This integration becomes even more complex when dealing with varying insurance structures and programs.
Any disruption in billing processes or revenue cycle management can lead to significant cash flow issues, delayed reimbursements, and increased denial rates.
Furthermore, organizations must carefully manage capital allocation for technology investments, facility upgrades, and clinical program development while demonstrating clear financial synergies to stakeholders.
Post-merger integration best practices
To ensure a successful M&A deal and post-merger integration process, here are a few best practices to follow.
1- It’s a core part of the due diligence
Successful healthcare mergers require comprehensive integration planning that begins during due diligence, not after closing the deal.
This includes a detailed analysis of clinical operations, IT systems, and staffing models, with clear milestones and accountability structures established before Day One.
2-Prioritize clinical standardization
Establish a systematic approach to streamline clinical protocols and care pathways across all facilities.
This involves creating physician-led committees to review and standardize best practices while respecting unique patient population needs.
3- Create an integration structure
Both entities should also take into account the various PMI challenges mentioned above, including cultural, financial, and operational integration challenges.
Doing so will allow them to address challenges beforehand and alleviate the impact of those challenges on the combined entity.
4- Appoint integration leaders and set a clear governance framework
Establish a robust governance structure with clear decision-making processes and authority lines.
This includes defining roles for clinical leadership, administrative oversight, and quality management across the combined organization.
5- Create an internal communication plan
Besides having an integration team and framework, you should create an internal communication process along with a clear PMI external communications process.
An internal communications plan ensures all teams and employees are aligned and well aware of the M&A deal, public information shared, and what they can and cannot discuss.
An external communications plan dispels rumors about the upcoming deal, reduces speculation, and ensures all media and third parties are on the same page.
6- Quality metrics alignment
Develop quality measurement and monitoring systems across all facilities. This ensures consistent monitoring of patient outcomes and helps identify areas requiring additional support during integration.
7- Revenue cycle optimization
Both entities need to carefully merge their revenue cycle operations with particular attention to maintaining cash flow and preventing claim delays.
Be proactive and plan ahead
Post-merger integration is a critical phase in any M&A deal. Effective planning is essential to avoid unforeseen challenges and ensure both entities reap the maximum benefits of the deal.
Having a dedicated integration team, whether on your own or through a consultancy, is crucial in navigating the post-merger or post-acquisition phase.
Identify and address issues early to overcome challenges and ensure a smooth transition.
