The typical hospital's electronic health record system represents a sizable sunk cost on which executive managers normally would want to get a long return on investment. But in a merger with another health system, writing off the IT might be the right thing for the overall merger goals.
"While it's certainly something that needs to be considered, you have to be, from a business standpoint, looking at the synergies of coming together as the organization, not necessarily what you spent in recent years," says Peter Zazzara, vice president with Cornerstone Advisors Group. "Although some people have alluded to it, I wouldn't imagine that IT is a giant consideration in terms of whether you merge or not merge." If it is, leaders aren't looking at the right business drivers, he says.
Instead, decisions on IT are more about which of the merger partners' systems to keep. A common assumption, that the acquiring entity imposes its IT system on the acquired, may not be always the case, says Paul Murphy, a partner with Encore, a Quintiles Company. "At least one client we've worked with really wanted the EHR of the entity that they'd acquired." Its own system was highly interfaced and not very efficient. Murphy recommends assessing all IT applications across both entities to determine which is better. Maybe the acquired entity's enterprise resource planning system is superior. "It's not all or nothing," he says.
Bringing together the same brand of IT systems from one vendor doesn't necessarily portend an easier integration, nor does interfacing two unlike systems always mean a worse time, says Aaron Carlock, managing partner with Huron Consulting Group. "We hear of organizations that make a decision based on the target having the same system, because there's this assumption that it will be easier," he says. "It's not easier to merge the same systems."
Carlock's experience in system implementation, mainly involving EHRs from Epic Systems Corp. and Cerner Corp., is that integrating like systems sometimes can be more challenging than merging systems from more than one vendor. The complexity stems from merging data. Epic, for instance, is very customizable in the way data are captured and represented in the application's database. Two customers may be doing it in vastly different ways, and there will be types of data that do not merge well, he says.
Part of the problem is that the market creates incentives to smooth the way for combining systems of different vendors, and thus not losing a sale for reasons of compatibility. Like systems are already in a particular vendor's customer base. "There has been a lot more history on going from one system to another, and I think vendors are pretty good at that, says Carlock. "They're much less experienced in merging their own clients together."
Experts suggest three other factors to keep in mind while evaluating IT options.
Maintenance costs. Look at the overall IT support and development costs for each entity, Murphy says. If one organization has a highly customized environment that requires a big development team, opt for the other entity's system. With a packaged solution, savings on the support side offset the license and implementation expense.
Timing. A chief financial officer likely would know the long-term contractual obligations agreed to with the EHR developer, especially for system maintenance and updating. Often six- or seven-year commitments are part of a contract as a condition of getting a better deal on software and implementation.
"If you've just renewed with a vendor and you've got all kinds of penalties in there for pulling out early, then that's a consideration," says Jared Rhoads, a health IT expert now in business graduate school. "Look at the contracts you've already got yourself into as hospital A or hospital B," and if there are still three years left on "that service contract that you paid big money for," you may have to pay a portion of the ongoing support even if you switch to something else.
Meaningful use. Identifying the acquired entity's compliance with meaningful use criteria is an important part of due diligence, Murphy says. "Meaningful use incentives [are] real money. Part of the value of the organization, in essence, is their potential incentive payments that remain." He cites one case in which, after a transaction, a merger partner was found to have failed to complete responsibilities for one of their years of attestation and could not pass an audit. "That's a scenario where, basically, that [incentive] money is going back."
A related consideration is the status of the acquired entity's vendor in keeping up with the development demands of Stage 2 of meaningful use requirements, Zazzara says. "If they happen to be with a vendor that is struggling with meeting meaningful use criteria, then that's a different story. They may have no choice but to rip and replace."
One consequence of the meaningful use regimen that can add expense and angst to a merger is whether partners are reporting the same selection of measures from the menu of options. To provide flexibility and allow providers to match requirements with their own IT priorities, regulations for Stage 2 directed eligible hospitals, along with eligible professional clinicians, to select three objectives from a menu of six. If the merging organizations selected different ones, a deep learning curve is in store for the organization that has to conform to the partner's meaningful-use path, says Murphy.
Some organizations have chosen to put in a new system regardless of the impact on federal incentive payments, he adds. They would rather miss a year of incentive payments and pay a penalty, and then take it up again when the merger transition is over, "rather than go through the agony of having to pull together attestation evidence from two separate systems in that year."
For more on the information technology decisions confronting leaders of newly merged hospitals, read "New Partners, New Systems?"
John Morrissey is a contributing writer to Trustee.