Proactive pre-close planning is essential to mitigate risks such as regulatory non-compliance, patient care disruptions, and financial losses in health care M&A deals.
Key takeaways
A comprehensive integration strategy ensures smooth transitions, protects key talent, and drives value realization post-close.
Effective change management safeguards reputation and patient trust by minimizing disruptions and fostering employee buy-in throughout the integration process.
For private equity firms investing in health care, the journey from deal closure to value realization is complex. Success hinges not just on the financial transaction but on the strategic orchestration and execution of the post-close journey.
The critical nature of services provided and the regulatory environment in which health care entities operate create unique circumstances for integration planning that must be addressed before the deal closes. Particularly for health care, integration is not just about combining assets and processes but also about ensuring that the entities can deliver safe, high-quality patient care without interruption. This requires a deep understanding of clinical care, industry regulations, revenue cycle operations, health care technology infrastructure and more.
The stakes are high, as any misstep can have significant consequences not only for deal realization but also for patient outcomes and regulatory compliance.
Key risk areas for private equity investors in health care
1. Regulatory and compliance issues
Without proper planning, a health care organization may fail to comply with regulatory requirements for integrating systems, processes and data. Lack of planning can lead to fines, penalties and legal action. Before the integration, we recommend conducting a comprehensive review of all regulatory requirements and ensuring the integration plan addresses all necessary compliance measures. Engage legal counsel and compliance experts to ensure compliance with all regulations.
2. Disruption of patient care
Inadequate planning for integration can result in disruptions to patient care, including delays in treatment, miscommunication between health care providers, and errors in medical record keeping. We recommend developing a detailed integration plan that outlines the steps, timelines, and responsibilities for pre-close and post-close integration activities. This plan should include communication strategies, training programs and risk mitigation strategies to minimize disruptions to patient care.
3. Loss of key talent
Poor integration planning can lead to confusion and uncertainty among employees, resulting in a loss of key talent who may leave the company for more stable opportunities. Organizations must communicate effectively with employees throughout the integration process by providing regular updates, addressing concerns and soliciting feedback. Engage with key talent early on and involve them in decision making to ensure their buy-in and retention.
4. Financial losses
Without proper planning, a health care company may experience financial losses due to inefficiencies in operations, duplicate systems and processes, and missed revenue opportunities.
Organizations should conduct a financial analysis to identify potential cost savings, revenue opportunities and risks associated with the integration. Develop a budget and financial plan that accounts for all integration costs and potential financial impacts.
5. Damage to reputation
A poorly executed integration can damage the reputation of a health care organization, leading to a loss of trust among patients, health care providers and other stakeholders. It can also have a long-lasting, negative effect on the company's brand and bottom line. Organizations should develop a communication strategy to manage the company's reputation before, during and after the integration. Be transparent with patients, health care providers and other stakeholders about the integration process and its potential impact on services. Address concerns and feedback promptly to maintain trust and credibility.
Strategies to address pre-close risks
Ensuring a successful integration within the first 30 days post-close is crucial for maintaining momentum and realizing the anticipated value of the deal. Therefore, the time leading up to this, or the pre-close, is vital. To that end, here are key strategic deliverables to focus on before the deal closes.
Integration plan
Develop a comprehensive plan that aligns with the overall strategy of the deal. This plan should reflect insights gained during the financial and operational diligence phases. For instance, inefficiencies in current operations, such as high patient wait times or underutilized resources, are important risk areas to address when planning to streamline systems, improve patient throughput and reduce costs.
- Objective: Ensure that the integration plan is a technical exercise and a strategic initiative that drives the combined entity toward its goals.
- Advantage: Formulate detailed steps to achieve integration, clearly defining responsibilities, timelines and milestones.
Execution roadmap
Create a clear and actionable roadmap for executing the integration. This roadmap should incorporate findings and objectives from the diligence phases to ensure that all considerations are addressed, from regulatory compliance considerations to data integration concerns.
- Objective: Provide a step-by-step guide that outlines the tasks, deadlines and resources required for successful integration.
- Advantage: Assign a project management team to oversee the execution, ensuring adherence to the roadmap and adjusting as necessary to address emerging challenges.
Change management plan
Develop a robust change management strategy to ensure smooth transitions for all stakeholders. If this process is overlooked, the staff may not be properly trained on new systems or processes, resulting in errors, decreased productivity and disruption in patient care. This strategy should integrate insights from the diligence phases to address potential issues and foster acceptance.
- Objective: Minimize disruption and maintain morale by effectively managing the human side of the integration.
- Advantage: Implement communication plans, training programs and support systems to help employees adapt to new processes and systems.
The takeaway
By addressing risks before closing and implementing a comprehensive integration plan, private equity firms and their health care portfolio companies can navigate the complexities of pre- and post-merger integration and, in the process, hopefully accelerate the deal timeline to capture value, anticipate compliance needs and preserve patient care outcomes.
RSM contributors
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Jennifer BussePrincipal -
Charlie DuvalDirector
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