A Post-Merger Integration Agenda for Health Care Payers

As the US healthcare industry emerges from the transformative impacts of the pandemic, mergers and acquisitions (M&A) are playing an essential role in helping healthcare payers adapt and thrive. While M&A offers substantial opportunities for growth and innovation, the true value of these deals can only be unlocked through successful post-merger integration (PMI). Here’s how leading payers can maximize the benefits of M&A to better serve their members and achieve strategic objectives.

Leveraging M&A to Expand Capabilities and Efficiency

Leading healthcare payers are increasingly using M&A to diversify beyond their core businesses, acquire new capabilities, and enhance operational efficiency. However, maximizing the value from these acquisitions is not straightforward. Today’s strategic goals and high valuations necessitate more than just achieving basic cost synergies. To truly succeed, payers must design “fit for purpose” integration programs that drive growth, enable digital transformation, introduce new ways of working, and improve customer experience.

Analyzing the Payer M&A Landscape

BCG’s analysis of M&A activities among the largest US payer groups since 2015 provides insights into the diverse rationales behind deals and helps design PMI strategies tailored to specific value creation objectives. The analysis highlights several key factors driving M&A in the healthcare sector:

• Value-Based Care: The accelerated adoption of value-based care and risk-based arrangements.

• Shift in Care Settings: A growing preference among providers and patients to move care to lower-acuity settings, such as the patient’s home.

• Profit Pool Shifts: Drastic shifts in the profit pools of payers and providers, amplifying the disadvantages for smaller businesses compared to larger, more diversified ones.

Despite the challenges of regulatory approvals, high valuations, and a reduction in available attractive targets, the largest US payers have varied significantly in their M&A strategies. While horizontal deals to consolidate payers have been common, vertical deals to acquire care delivery organizations, digital capabilities, and pharmacy benefits management are increasing.

Four Archetypes of Payer M&A Strategies

Examining recent transactions reveals four main archetypes of M&A strategies among major payers:

1. Rolling Up Plans to Increase Scale and Enhance Care:

   • Small and midsize horizontal deals that increase scale and spread fixed costs, enhancing cost competitiveness and freeing resources for growth.

2. Expanding into Care Provision:

   • Vertical acquisitions aimed at improving care quality and cost through integrated care delivery models, particularly attractive for payers with strong Medicare Advantage presence.

3. Enhancing Digital and Other Scalable Capabilities:

   • Acquisitions of digital infrastructure and know-how to propel payers into next-generation capabilities such as telemedicine, remote patient monitoring, and advanced analytics.

4. Taking Control of Prescriptions:

   • Acquisitions of pharmacy-benefits management capabilities or pharmacies to better control drug spending and offer integrated member services.

Tailoring Integration to the Archetypes

To unlock the value of these acquisition archetypes, a fit-for-purpose PMI approach is crucial. Key actions include:

• Integrate roll-ups rapidly: Minimize operational disruptions and eliminate duplications to maximize synergies.

• Balance care delivery integration: Avoid losing talent by balancing autonomy with efficiency and setting clear expectations for the future operating model.

• Scale capabilities quickly: Develop aligned plans for integrating and scaling acquired capabilities with the expertise and resources to make it happen.

• Bundle pharmacy services effectively: Develop the right operating model to integrate pharmacy services with core operations and ensure cultural alignment.

Imperatives for a Successful PMI

BCG identifies six imperatives for a successful PMI, applicable regardless of the acquisition archetype:

1. Clear Vision: Provide clarity on the acquisition's intended results and how people will be affected by changes.

2. Rigorous Approach: Tailor the PMI approach, adhere to best practices, and ensure employee buy-in.

3. Defined Operating Model: Clearly define how the acquired organization will fit into the buyer's structure before closing.

4. People Management: Communicate proactively and take the right approach to retain key talent.

5. Cultural Integration: Design a well-thought-out cultural integration plan to ensure a positive employee experience.

6. Performance Priorities: Set clear improvement targets and establish appropriate metrics for performance and progress.

Conclusion

M&A provides a robust pathway for healthcare payers to adapt to the transformed industry landscape post-pandemic. However, realizing the full potential value of an acquisition requires meticulous planning and execution of PMI strategies. By focusing on tailored integration plans, establishing strong central integration management offices, and adhering to best practices, payers can achieve their strategic goals and create long-term value. For expert guidance and support in navigating the complexities of M&A, contact our office to ensure your transactions are set up for success.