Integration Strategies in the Modern Healthcare Market

ChallengesA healthcare M&A transaction is usually a scenario where two entities completely merge as one in order to broaden their footprints on the market and improve the quality of patient care for the surrounding demographic of the businesses.  While the majority of these types of deals run like a well-oiled machine after the contracts are all signed, there are always some instances where the integration of the two businesses may clash and create some friction between the parties involved.

The Ambulatory M&A Advisor examines some of the key points of integration that parties may miss, like the importance of keeping employees in the loop of the deal, what exactly buyers and majority owners expect out of a deal, and the importance of culture as an integration tool post-transaction.

Culture, Culture, Culture

Greg Zoch, partner and Managing Director with Kaye/Bassman International Corp. says that as a whole, culture is like reputation; it comes with the business no matter what.  When examining culture in a prospective business, it is important to become aware of the culture that the selling business has and then to ask oneself if this is the culture that is most productive for the merger that is anticipated.  The main question a buyer should ask is if this the culture that is best for attracting and retaining the best people that will help to grow the organization in the big picture.

When discussing culture, Zoch says the core of the matter is really talking about the people and the values that these people have in a business.  What investors and buyers really want out of a deal in this area is to build a culture of people that have shared values.

“It doesn’t mean they have to be the same, agree on everything etc.  It’s not about sameness, it’s about shared values.  You can have incredible diversity and still have a culture of excellence,” Zoch says, warning that  If the proper time is not taken to observe and find out what kind of culture the prospective business has, it is substantially more difficult to be deliberate about creating a different culture that integrates the two businesses, should the buyer want to.

“If they consider the culture of the company they are acquiring or merging with, that will give them a sense of whether or not it makes sense from a cultural standpoint to buy or merge with this company.  If it does, great.  It might make perfect sense financially, and they may move forward with the transaction even if it is not an exact cultural fit,” Zoch says.

“Knowing how good a fit it may be would help them understand that there is going to be some cultural adjustments and some integration work needed and they may need to spend a little more time working with the culture’s influencers or leaders within the acquired company in such a way that give people a sense of what the new company is about, what their culture is, and why they wanted to buy into the company.”

Zoch adds that if a buyer is not aware of the culture in the diligence process, they are ultimately going to be faced with integrating that culture one way or another, later on.  The sooner a buyer can identify how different the cultures are, the easier the transition will be for everyone.

Integration Among Employees

During a transaction, tensions may become high as employees begin to take notice that times are changing for their business.  Thoughts may arise that include the employees feeling like their position in the business is no longer secure, and they may have many questions.

Logan McCall, CEO of ZipClinic Urgent Care says that one tactic to overcoming this issue is that the buyer may have to step forward and let the employees personally know that they are still wanted and valued.

“Reassurance, open lines of communication, transparency and honesty between the seller, the buyer and the employees can help retain key employees during an urgent care transaction; however, reassurance is a responsibility that falls on both the seller and the buyer,” McCall says.

In relation to transactions, Zoch explains that there is a certain degree of uncertainty that comes with a change in control in management with an ASC or urgent care center.

“Whether it’s a new boss or a new company writing your paycheck, there is a certain amount of uncertainty.  That can cause some people to react from a place of fear and dread.  That in itself can create a potential drag on productivity and it could be a culture changing thing if enough people catch that ‘virus’,” Zoch says.

The way Zoch says companies can address this issue is by having an acquiring-company imagine that they are hiring a person rather than buying a company.

McCall adds that in healthcare, there are some reasons that a seller would want to remain on board as an employee or an advisor for the first few months post-transaction in order to help ease the transition for both the buyer and the employees that remain in their positions.  This also, however, needs to be a plan that is approached from a fair standpoint between the buyer and the seller with regard to integration and the change in the seller taking the back seat of the business.

“If staying on, the buyer and seller need to discuss the terms of the employment arrangement going forward, including compensation, employee benefits, paid time off and non-competition provisions.  Call coverage is also an important topic of discussion,” he says.

In the situation of the seller remaining, the seller will need to adapt to no longer being his or her own boss, so to speak.  Becoming an employee and answering to someone else is sometimes a very new concept to the seller.

“How a seller reacts to this shift in power is largely dependent on the attitude of the buyer (or the agent of the buyer in charge of managing the newly acquired practice) and the attitude of the seller.   Some sellers react very well to having the stress of running the business of the practice removed, while others miss the control and authority of being the owner of the practice,” McCall says.

What Are Major Buyers Looking Out for In Integration?

Peggy Sanborn, Vice President of Strategic Growth, M&A, partnership integration at Dignity Health says that when exploring the possibility of a merger and the business integration involved, there are several factors that come into play.

Sanborn says that the first step in examining integration possibilities on the buy side should be whether the health service and delivery model is for a particular community and/or geography that they serve.

Sanborn says meeting community needs is critical, because in a merger, not only is integration among businesses a factor, but integration into the surrounding community is involved as well in the healthcare field.

“We start from a strategic footprint perspective and then begin the process of assessing how we can best deliver that.  Is that through a relationship with an existing urgent care provider, is it through something that we wholly operate, or is it through a model that is more structurally akin to a joint venture?  The Joint Venture is a model in which we work with a partner that might be focused on urgent care specifically, and we provide resources and services from Dignity Health that can better enhance the overall services that need to be provided.”

Sanborn says that in the current healthcare market, the ability to be aligned with networks that can provide numerous services is the target of most mergers.

Particularly, as health reform initiatives continue to advance and networks become more critical to having access to patients to serve and being able to participate fully in health plan offerings and serving the total population, growth becomes ever more important.  However, sellers need to keep in mind that there are factors outside of the need to grow that can impact a buyer’s determination to move on with a deal.

Sanborn says areas in a business like billing, coding and compliance are important to the integration equation as well as how they attract and recruit patients into their centers from a marketing and solicitation compliance standpoint.  Sanborn says if, during the diligence process of the deal, these things pop up with material issues associated with their historical operation, that could be a huge red flag in terms of a prospective buyer moving forward with the acquisition.

Therefore, in the current market, it is crucial that sellers keep themselves up-to-date on their current systems as well as have a complete understanding of the buckets of buyers looking at their business market and what their expectations are.

If you would like to learn more about the concepts covered in this article, want to sell your business or discuss how Ambulatory Alliances, LLC might be able to help you out, contact Blayne Rush, (469)-385-7792, or Blayne@ambulatoryalliances.com.

If you have suggestions for future topics, email Blayne@ambulatoryalliances.com.

 

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