What’s the Difference Between Mergers and Acquisitions in Healthcare?

Last Updated: 4/10/24

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Healthcare payers are constantly looking for ways to reduce or improve costs. One way to do that is to acquire another company in the healthcare industry or join with another payer.

If your organization is looking for ways to grow and improve, you might consider merging with or acquiring another. Learn more about the difference between healthcare acquisitions and mergers, the benefits of each and how to successfully navigate one or the other.

What Is an Acquisition in Healthcare?

During an acquisition, one healthcare organization gains control of another. For example, one insurer could acquire another to increase membership or enter a new market with enhanced products and services. Though larger companies typically buy up smaller ones, in some cases, one insurer might purchase another similarly sized one.

Following an acquisition, the purchasing organization takes over the operations of the practice it bought, often changing the hiring policies, operating hours and HR standards.

A healthcare payer might decide to purchase another payer or service provider for various reasons.

  • To start offering a new service: Acquiring a company that offers a service related to healthcare, such as a telehealth network, allows a payer to offer a new service to patients. If an insurer acquires a telehealth vendor, it can direct members to that vendor, reducing its healthcare costs.
  • To increase its member base: Acquiring another healthcare payer allows the first payer organization to expand the size of its member base. For example, if a larger insurer purchases another, it gets access to the acquired payer’s members.
  • To reduce costs: An acquisition can be a cost-cutting move, as well. An organization can purchase a company that produces specific types of medical equipment or offers certain services, reducing its expenses in that department.
  • To expand geographically: Acquiring another insurer allows a healthcare payer to increase its geographic footprint. For example, a New York-based insurer can purchase a payer based in Philadelphia, allowing it to expand into another regional market.

Acquisitions can be friendly or hostile. During a friendly acquisition, the two companies cooperate throughout the process. The organization’s leadership team has accepted the offer and given their approval.

During a hostile acquisition, the management of the acquired organization isn’t in favor of the purchase. The management team might reject the offer from the acquiring company or try to block the sale.

What Is a Merger in Healthcare?

During an acquisition, one organization absorbs the other. In contrast, the two organizations join forces during a merger. A payer merger might involve two similarly sized insurance companies teaming up to create a new, separate, larger organization. A payer might combine with a services provider to create a more robust product offering. Usually, mergers occur between two similarly sized organizations.

After a merger, the two organizations become the same legal entity. For example, if two healthcare payers merge, the new organization might change its name to reflect the shared market or to unify the formerly separate names.

Genuine mergers are less common than acquisitions in healthcare because it’s less likely that both organizations will benefit equally from combining their resources.

Here are some of the reasons to consider a merger.

  • Reduce costs: When two healthcare payers become one, they share expenses, which can help save money. For example, the two payers might move into the same office space, significantly reducing the cost of rent. Some employees could become redundant, lowering the cost of labor.
  • Increase market share: Merging two healthcare payers allows them to increase their market share. The two insurance companies share members after the merger.
  • Improve patient care: The less work there is for the patient, the better their quality of care. When a healthcare payer merges with a company that provides services such as telehealth, getting access to care becomes much more straightforward. Patients can also feel more confident that their insurance will cover the cost of services they receive from all companies connected to the payer.

What Are the Benefits of Mergers and Acquisitions?

Benefits of Mergers and Acquisitions

If growth is one of your healthcare organization’s goals, a merger or acquisition can help you achieve it. In addition to expanding your organization’s reach and market share, here are some of the benefits of a merger or acquisition.

If growth is one of your healthcare organization's goals, a M&A can help you.
  • Creates a more patient-centric organization: Whether you acquire another payer or join forces with an organization, you can build a patient-focused organization. Expanding the size of your administrative staff by merging with another payer or a healthcare services provider can improve claims processing and increase efficient, accurate billing. An acquisition or merger can also increase the size of your member support teams, such as call center representatives. You can also offer direct services to patients, such as through telehealth nurses and physician’s assistants, creating more care opportunities..
  • Raises employee engagement: Smaller payers often expect employees to take on extra tasks, potentially leading to burnout. When more people share duties and the efforts of two organizations have combined, the workload lightens. That can lead to more engaged employees who are excited to come to work daily.
  • Creates more opportunities for your organization: Acquiring another healthcare payer or organization lets you move into regions you wouldn’t otherwise have access to or add services your organization didn’t previously offer. The more geographically diverse or well-rounded your organization is, the further its reach and the more potential it has to establish itself as a leader in the industry.

How to Negotiate a Merger or Acquisition in Healthcare

During a merger or friendly acquisition, you want an outcome that works for both parties. The secret to a successful healthcare merger or acquisition is having a specific idea of what you want to gain from it before beginning the process. Knowing what your organization needs to grow will guide you through the process of choosing another healthcare company to merge with or another practice to acquire. Don’t rush the process.

It can be helpful to get outside support during the M&A process. ProspHire’s growth and expansion services can help you develop a strategy to improve your organization’s profits and to secure its future.

Acquiring another healthcare organization lets you move into regions you wouldn't otherwise have access to

ProspHire Can Help Your Healthcare Organization Grow Through M&A

If you’re ready to transform your healthcare organization, ProspHire is here to help. Our business growth and expansion division has experience providing support to organizations that want to grow internally and externally. We work with you to develop a strategy and roadmap to guide you to where you want to be. Contact us below to learn more.

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Caitlin Nicklow

Senior Manager