Journal of AHIMA - February 2012

PRACTICE BRIEF

practice guidelines for managing health information

Identifying Issues in Facility and Provider Mergers and Acquisitions

Editor’s note: This practice brief supplants the November 1996 brief “Managing Health Information in Facility Mergers and Acquisitions.”

HEALTHCARE’S RAPIDLY CHANGING environment has prompted an increase in mergers and acquisitions as facilities and providers strive to streamline their operations and improve their competitive positions. However, a 2007 study conducted by Robert F. Bruner of the University of Virginia found that approximately two-thirds of mergers and acquisitions fail to achieve their expected outcomes. 1 Failures are often the result of bad strategic decisions or lack of due diligence on the part of both parties. These dismal results highlight the risks of mergers and acqui- sitions. Accordingly, healthcare organizations must consider many critical issues before agreeing to a merger or acquisition.

Some issues to consider include:
x Identifying key motivators such as growing the organiza-
tion’s business, people, or assets
x Integrating electronic health record systems
x Combining financial systems
x Managing health information
This practice brief reviews the types of mergers and acquisi-
tions in healthcare and identifies the key motivators and drivers
for mergers and acquisitions and the different issues organiza-
tions should be aware of during the merger and acquisition pro-
cess.

Types of Mergers and Acquisitions

There are different types of mergers and acquisitions. Organizations should review what each entails to determine which form of regulation will be used.

A consolidation occurs when two separate entities come together to form a new entity, which is the surviving entity. A merger is when one entity is absorbed into a second corporation, which is the surviving entity.

In an asset acquisition one entity acquires part or all of the assets of the other. In a stock acquisition one entity acquires part or all of the stock of another corporation.

Once the type of partnership has been determined, organizations should identify key motivators for the merger or acquisition, including business drivers and characteristics. Identifying the key motivators will further help each entity determine if the acquisition is in its best interest.

Key questions to ask prior to entering into a transaction include:

1. What is the primary reason for the transaction (e.g., acquiring talent, increasing cash flow)?

2. Will the transaction further the strategic plan?

3. Will the organization or provider gain a new technology or product?

4. Will the organization or provider expand its current market share?

5. Will the organization or provider be able to use the transaction to enhance operations?

6. Will the transaction result in cost efficiencies?

7. What are the deal breakers?

8. How will employees of both entities be affected? Will the surviving entity consolidate positions? Will it require an expanded workforce or lay-offs? How will this affect morale, recruitment, and retention?

Once the decision to move forward with a transaction has been made, organizations should conduct due diligence research of the licensure, regulatory, and accreditation requirements before addressing operational issues.

Licensure

Organizations must determine whether operations will be conducted under a single license or multiple licenses. Each entity must ensure compliance with each set of applicable licensure standards.

Reimbursement issues, including prospective payment system (PPS) rates, may favor facilities maintaining separate licenses to maximize payments. In addition, if there is a significant difference in case-mix indices between the two facilities or if one facility is PPS-exempt, it may be advantageous to maintain separate licenses.

Regulatory and Accreditation Issues

Some states have statutory or regulatory guidelines regarding the management of health information in mergers and acquisitions. Most require the surviving entity combine the acquired entity’s active records with its own records and prepare a retention schedule that meets the needs of patients and other legitimate users and complies with legal, regulatory, and accreditation requirements.