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Recipe for Successful Health System M&A: Ensure Focus on Execution of Transaction Does Not Undermine Key Long-Term Strategic Imperatives

 |  By Brent McDonald  
   April 20, 2017

The evolving U.S. healthcare landscape, perhaps more now than ever before, requires that health system executives possess varied and deep skill sets. Not only must executives navigate the changing political and macroeconomic landscape, including the repeal-and-replace uncertainty, but in execution of their well-intentioned strategic transactions, health system leaders must remain focused on the original strategic imperatives and objectives to help ensure long-term, sustainable success. Of 140 surveyed participants, 61% believe their organization’s merger, acquisition or partnership activity will increase within the next three years.

Commonly, a decision is made to move forward on an appropriate strategic transaction and then senior leadership assigns a multidisciplinary deal team to consummate such. The majority (74%) of surveyed participants cite both financial/operational and clinical/care delivery equally as the primary objective when deciding to transact. Prior to commencement, successful healthcare organizations will have gone through a lengthy strategic planning process, developed a list of strategic imperatives and had such approved by their board of trustees. Some of these strategic imperatives may include: the Triple Aim, relevance/attractiveness with employers and payers, alignment of incentives, ability to manage the resulting organization as a system versus a loose federation, and the stickiness and sustainability of the resulting system.

A breakdown in the deal consummation process that results in the strategic imperatives not maintaining primacy but being subordinated or ignored may result in a nice press release or closing ceremony but when measured by the test of time, the transaction may not deliver expected and necessary sustaining strategic benefits. This is exacerbated in complex M&A transactions and strategic partnerships. Such complex transactions cannot be managed in a manner similar to important but more routine operational or capital initiatives (e.g., construction of a new bed tower or implementation of a staff reduction initiative) facing healthcare organizations. Senior leadership must help ensure that the strategic benefits of a transaction do not become deemphasized due to deal fatigue, completion of task bias, arbitrary deadlines, and other pressures that work against the deal team obtaining optimal outcomes.

Healthcare leaders must help ensure that the strategic imperatives are effective guardrails of the deal team’s efforts and not lost in the difficult and dynamic transaction negotiation and consummation process. A successful approach focuses less on arbitrary timelines or goals and embraces an accountability process that monitors the deal progress and documentation to help ensure a true north heading. Effective leaders must remain laser-focused on the strategic imperatives and not allow completion and execution of the deal to subordinate the foundation of the original strategic mandate.

Brent McDonald is head of Healthcare Strategic Advisory Services, Managing Director Bank of America Merrill Lynch.

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