According to the Healthcare Mergers & Acquisitions report produced by Irving Levin & Associates (www.levinassociates.com) 2006 was a record year. For the 13 sectors covered in the healthcare industry, a total of $260.7 billion was committed to finance a total of 991 deals. This represents a 61% increase over the $162.3 billion spent during 2005. Dollar volume in the all important healthcare provider segments (hospitals, clinics, physician practices) increased more than 1,000% year-over-year.

The wave of consolidation in healthcare is born out of critical necessity. As the system deteriorates, many healthcare leaders are looking toward their CIOs in the hope that rapid technology deployment can stop the bleeding. This endorsement is also shared by President Bush, who announced a series of initiatives in early 2004, all based upon aggressive investment in IT.

Many CIOs have been overwhelmed when faced with an M&A event. The two main reasons are as follows:
1. Senior management teams have been exceedingly slow to broaden the role of the IT department and its CIO when engaged in M&A activities. The reason is that many still see the IT department as an operational rather than strategic participant.

2. According to conventional wisdom, if a CIO has seen one healthcare M&A transaction, then he or she has seen only one healthcare M&A transaction. Due to the diverse nature of the healthcare industry, the risks and opportunities vary from situation to situation.

The Role of the CIO
It should come as no surprise that IT is considered an important factor for the future of healthcare services. IT pervades every aspect of healthcare delivery, from records management and laboratory systems to supply chain management.

It is crucial that the CIO has a place at the table when pursuing an M&A. No longer can the IT department be considered part of the cleanup team, left to patch things together in the aftermath of a transaction. In particular, the CIO should participate in three different areas:
1. Help develop the overall M&A strategy prior to an actual event.

2. Assume a leadership role during the due diligence phase.

3. Coordinate both strategic and tactical elements of the integration.

Recommendations
1. Understand why the firm is pursuing the M&A strategy. The goal of any M&A is to seek synergies that will add value to the overall organization. Specifically, there are three main reasons to pursue M&A opportunities: expand product and/or market breadth, increase scale, or drive efficiencies that reduce costs (see Figure 1). Participating in high-level discussions with the executive team will help the CIO understand the firm's intent, thereby establishing the basis for setting strategy.

2. Assess how value creation opportunities driven by M&A impact all stakeholders. In healthcare, IT touches every functional group within the organization - administrative staff, clinical staff, management, ownership, vendors, and most importantly patients. This places the CIO in a unique position to conduct an assessment of each stakeholder group and how they may be affected by a transaction. Specifically, identify and quantify all potential threats and opportunities with respect to IT that impact the delivery of patient care. Changes or limitations in applications, appliances, and processes, for example, can adversely affect the quality of care and thus should help shape M&A strategy.

3. Set parameters around the types of transactions that provide the most upside potential and least downside risk. Using the analysis structure in Figure 1, parameters such as size, type, market segment, geography, desirable core competencies, and expected timing should be explicitly defined. For example, limitations on platform scalability might establish a ceiling on the size of any potential acquisitions.

4. Make sure IT's voice is heard. The CIO must be willing to speak up about an overly aggressive M&A strategy or one that is not bold enough. Also, the ability to project confidence regardless of the conclusion is based upon the IT department's preparedness. Preparing for an M&A event will be next in this series.

Bottom Line
Because technology is embedded in all facets of healthcare delivery, CIOs must assume a leadership role in preparation for the threats and opportunities of M&As. The first step is to be involved in the M&A strategy development.