What Happens in Healthcare Mergers & Acquisitions? Strategies for a Successful Transition
Healthcare mergers and acquisitions reached a new record high in total revenue in 2022, according to Kaufman Hall’s analysis. While the number of transactions is still below pre-pandemic levels, total revenue hit $45 billion, which broke the previous record of $44 billion set in 2017. There were 53 announced transactions in 2022, a slight increase from 49 in 2021.
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).
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.
Do Your Due Diligence – How YES Can Help
The ProFee Coding Quality Improvement case study provides a thorough analysis on the unique challenges presented during healthcare mergers and acquisitions. M&A may impact medical coding quality, turnover rate, productivity and the bottom line. The case study analyzes the impact the solutions made at a facility over a 33-month period.
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.