Healthcare M&As: Move Quickly on Data Integration

As the healthcare industry continues on its blistering pace of mergers, acquisitions, and partnerships, ripping and replacing IT applications—notably EHRs—to achieve data integration, has been the de facto first and only option considered. That's a very costly and disruptive approach to data integration and interoperability; meanwhile, the executive team will lack the basic analytics and KPIs required to manage the new enterprise. Integrate your data first, then your applications.

DS: Data is now the longest living, most strategic asset in the healthcare enterprise. People will come and go, as will bricks and mortar, but data is here to stay and will drive every business decision of the future. McKinsey reports that 40% of M&A value in healthcare is directly tied to IT strategy. Much of the focus of today's M&As boils down to brick-and-mortar acquisition and sometimes skills acquisition. Data content acquisition is rarely, if ever, considered as a primary driver for the M&A. After the M&A, C-levels are almost always left disappointed for months and years by the inability to manage the new enterprise from basic KPIs and incentive-based quality measures.

DS: The mentality of integrating data first is happening across all companies and industries, but healthcare is woefully lagging. I don't see much preplanning around data integration in most M&A activities. IT and data end up as an afterthought, which is an old way of thinking and one that really hinders growth. Basic financial KPIs and quality metrics become literally impossible to produce. The entire value proposition of the M&A is placed at risk and, most certainly, delayed.

McKinsey reports, and I agree completely, that in the run-up to the M&A, top-performing organizations proactively plan for an integrated data strategy within six months post-closing, and that integration strategy should be implemented through an enterprise data warehouse. Top performers go into their deals with a mind-set to integrate their data as quickly as possible, which greatly accelerates the value of the merger. But the prevailing data integration strategy in healthcare is to rip and replace application systems like EHRs and ERPs, which is not by any means a six-month endeavor. Integrate the data first, then the applications.

DS: Ripping and replacing EHRs with a single, common vendor is not an affordable, timely, or effective strategy. The ROI is simply not there. From a time standpoint, you'd be lucky to finish a rip and replace of your systems in two to three years. McKinsey and Standish report that a rip and replace will result in schedule, budget, and value challenges—on average, 74% over schedule, 59% over budget, and delivering 56% less value than assumed. In the meantime, over that time period your risks as a new company climb, and your margins and reimbursement levels fall. The time you spent on the rip and replace is a major distraction from other priorities; it's a lost opportunity problem.

Typical costs incurred with the EHR implementations are orders of magnitude more expensive than a data integration strategy implemented in a data warehouse. On average, it's about 5% of an EHR implementation budget. Average EHR implementation costs range from $1.5 billion for very large healthcare systems, $646 million for large, $363 million for medium, and $127 million for small to medium. On top of that, it is common to see a 10% to 15% drop in productivity for 12 to 18 months after the implementation of a new EHR. It's disruptive culturally and financially.

DS: Invite the CIO to the table. Integrate your data between the parties of the M&A within six months post-close, and an enterprise data warehouse is the best way to do that. Challenge the status quo thinking that ripping and replacing EHRs and ERPs is the best strategy to achieve data integration, because it's simply not. It doesn't make sense financially, and it's a major disruption and distraction to the culture. Ask anyone who's ever been through an EHR or ERP rip and replace. It's much worse than a green-field implementation. Replace your EHR and ERP systems on a three- to five-year roadmap post-M&A.

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