Healthcare Mergers: CLIFNOTES - Planning the IT Fusion

December 2018

Realizing the benefits from a newly formed health system is never soon enough.  IT provides the infrastructure “rails” that support the clinical and business operational initiatives as well as data-driven strategies such as population health.  At a CHIME mergers and acquisitions focus group, a healthcare CIO commented that “IT comes after the business decision.”   That’s true, yet given the transition time and high dollar investment to establish common platforms, IT needs to get out front in order to support a broad scope of business initiatives.   As more specific business and clinical decisions evolve, IT will be need to be nimble and adaptive. 

HealthNET has led the IT initiatives for many of the health system mergers, including seven in New England, and being the designer/planner, I thought I would share the CLIFNOTES version on how to proceed and things to watch out for.     

1.) Get to Know Each Other.  This may sound simple, but surprisingly, many of the IT leaders are acquaintances but do not “know” each other. 

2.) Find Out Who the Clinical and Business Leaders Are.  This can be formal, such as via task forces and studies, and informal because there are usually key mover/shakers. Get to know these people. 

3.) Strategic Direction.  Start by looking for any defined overall organizational goals and models such as the four pillars.  Also look for any specific business objectives and plans.  In the absence of definition, develop and define an overall IT strategy that anticipates likely business goals such as the Central Business Office (CBO), financial reporting and consolidated laboratory.  Classic long-term IT issues that should be included are vision, goals, software (e.g. common or multiple primary vendors), technology (e.g. cloud, standards), security (standards), organization and resources, and innovation.  A SWOT analysis here would be helpful, notably to look at strategies in the context of Big Tech impact into the healthcare space.  

4.) Take Stock.  Make an inventory of IT assets including:

  • Software  - EHR, ERP,  numerous specialty/niche systems, interfaces, websites, emails, etc. – find out versions and contract terms
  • Technology – data centers (network-wide and local), servers, storage, devices, disaster recovery (DR), and operations
  • Security
  • IT organization and resources – Full-time equivalent (FTEs) by role; shadow IT 
  • Capital and operating budgets.  We use an Excel-based “kit” that helps in lining up the data and facts by health system/hospital/clinic, which is especially valuable in analyzing the niche systems for keep/replace plans. Here is an example: 

5.) Identify Opportunities and Quick Wins.  I suggest an opportunity analysis that addresses strategic, operational, and cost factors.  Use both quantitative and qualitative methods, then factor in the likelihood of achievement level, much like factoring down accounts receivable (A/R). 

6.) Develop a Tactical Plan.  The opportunity analysis can serve as a reference for breaking things down into projects/initiatives.  The keys to the tactical plan are prerequisites, duration and costs. 

7.) Total Cost of Ownership (TCO).  Total cost of ownership models are a must because they will project costs over time. The time scale needs to include sunsetting and archiving of the legacy systems (presuming that you’re planning to replace some of the systems as they age out).  You will also need to estimate (or have a negotiation with vendors) on the pricing, e.g. in a sliding scale for number of licenses to achieve some economies of scale.  Moving from the analysis side to budgeting, capital and operating cost definitions can get a bit sticky, particularly for an expansion or new acquisition; also make sure that you check the depreciation schedules of IT components as part of the conversion timing.  Cost allocations will also need to be worked out. 

I hope this commentary serves as a useful guide as you embark upon all the intricacies that accompany a merger. As a supplement to this guide, I encourage you to download HealthNET’s presentation entitled “Health System Mergers & Acquisitions: Considerations for IT," which provides an in-depth look at some of the most recent trends and additional things to know along the way. 

 

About the Author: Clifton Jay founded HealthNET in 1990 and it is his vision that has created the long-term partnerships HealthNET has with many of its clients. With over 30 years of experience in healthcare IT and operations management, Clif helps clients with strategies, tactics and optimizing their use of information technology. Prior to founding HealthNET, Clif held practice director and vice president positions for national healthcare consulting firms and was a vice president for a hospital association consulting subsidiary. In addition to his leadership responsibilities, Clif pursues his other interests as a musician, tennis player, angler, and car enthusiast.