What Happens in Healthcare Mergers & Acquisitions? Strategies for a Successful Transition

What Happens in Healthcare Mergers & Acquisitions? Strategies for a Successful Transition

In 2024, hospital merger activity reached new heights, with 72 announced transactions – surpassing the 65 deals recorded in 2023 and the 53 in 2022. The total value of health services mergers and acquisitions saw a modest increase in 2024, rising to $69 billion from $63 billion in 2023. This follows a fluctuating trend over the past several years, with deal values reaching $88 billion in 2019 before dropping to $56 billion in 2020. The sector experienced a record high of $197 billion in 2021, only to decline to $101 billion in 2022.

A significant portion of these deals in 2024 involved financially distressed organizations, marking a record-breaking trend. In 2023, 27.7% of transactions included a distressed party, but that figure climbed to 30.6% in 2024, setting a new industry benchmark.

What happens when physicians merge or sell their practices? In this article, we’ll describe the process of events during a merger and acquisition (M&A).

Do you need to set up a coding audit for a practice you’re about to purchase? Reach out to our experts today to discuss our due diligence coding audit services.

What happens during an M&A?

Mergers and acquisitions can be long and convoluted when there’s no plan in place. It’s critical for providers to strategically plan how the transaction will occur to prevent failures. Here’s a brief overview of the M&A proceedings, summarized from an article by Tarek Aly.

First, consider the reason behind the transaction. What value will the provider or health system receive out of the transaction? Does the practice you’re acquiring or the health system you’re merging with share the same values? Do the services match your goals? These are just a few important questions you should ask before moving forward.

Next, decision-makers should gather preliminary data on the other party in the transaction, including annual revenue, number of beds/facilities, names of physicians, and years in operation, to name a few. It’s also essential to find out the current asking price of the practice that will be merging.

Then, it’s time to send a Letter of Intent (LOI), where the health system (or buyer) lets the practice (seller) know their intentions to purchase or merge. Generally, the letter establishes several legal clauses to maintain confidentiality, agree to the non-solicitation of patients or employees, and ensure all data provided is complete and accurate.

After the LOI is sent and accepted, decision-makers must do their due diligence to identify potential liabilities. This includes reviewing the practice’s finances, coding and billing, compliance, properties, denials, DNFB rate, and any lawsuits or legal issues. If the practice or health system is not in healthy financial shape, it sullies the potential for a successful deal to go through.

If all goes well during the fact-finding and due diligence stage, the deal can move forward to signing an asset purchase agreement (APA). The APA defines the entire transaction and the terms of the deal. Once the APA is signed, the funds are wired from the buyer to the seller, and the deal is officially closed.

Keys to a Successful Deal

There are several elements to implementing a successful M&A, according to an article by Nick Hernandez:

• Maintain open, honest communication and transparency during the deal. Decision-makers on both sides need to have direct communication lines and share their expectations, so there are no misunderstandings.
• Create a new brand for the newly acquired practice. Both parties need to formulate a shared identity and vision for the new practice.
• Assign a team or committee to integrate the acquired practice into the existing health system. A dedicated team will ensure the entire process runs smoothly and address any issues that arise without disrupting daily operations.

What Comes Next? Strategies for Post-Merger or Acquisition

Through industry best practices and years of experience, we’ve compiled a comprehensive overview of the healthcare mergers and acquisitions process. By downloading this eBook, you’ll receive:

• Medical Practice Valuation Tips
• Due Diligence Audit Checklist
• Qualities of a Reliable Audit Partner
• Sales Mistakes to Avoid
• Action Items for a Successful Transition

Do Your Due Diligence – How YES Can Help

Are you in the middle of the M&A process? YES HIM Consulting can help your team complete the due diligence for coding quality audits. While we don’t conduct financial audits, coding quality audits are equally important in the due diligence stage. Coding quality audits identify compliance issues, inaccuracies, overcoding, undercoding, and more.

Reach out to our consultants to schedule a due diligence coding audit. We’ll talk to you soon.