Strategic power to apply rationalization in medical mergers and acquisitions
Healthcare M&A continues to rise and fall. Activity in 2024 peaked with large-scale deals, but now healthcare organizations are taking a more cautious approach – driven in part by wider economic headwinds such as proposed Medicaid cuts, evolving tariffs and uncertainty in the 340B program. Analysts expect the merger activity to continue, but begin with appropriate and start, which is shaped by new strategies and innovative transaction structures that increasingly involve a mix of large systems, regional players and non-traditional partners.
Regardless of the pace of transactions, mergers and acquisitions are inherently complex, bringing together not only financial models, but also thousands of employees, millions of patients, and a wide range of physical and digital infrastructure. One of its most expensive and most resulting challenges is integration.
Over the past decade, health systems have been rapidly digitized, resulting in redundant, underutilized and older systems. Analysts estimate that 20% to 30% of IT system resources in the consolidated health system are duplicate or outdated. Unchecked remaining, these systems continue to drain resources, introduce cybersecurity vulnerabilities, and slow down innovation long after the transaction is over. Here, application rationalization is not only useful, but also essential.
Apply rationalization is a strategic leverage that provides immediate ROI and long-term corporate value. By investing capital budgets in rationalization and archive implementation, health systems can significantly reduce operating costs – reducing licensing costs, infrastructure needs and support burdens. At the same time, they reduce risks, improve data access and lay the foundation for scalable innovation.
By rationalizing applications as a core part of M&A strategy from the outset, healthcare organizations can instantly save costs, reduce risks, and lay the foundation for lean, unified and future businesses.
Here are three key steps:
1. Embed cross-functional governance from day one – Strong governance is the basis for any successful application rationalization efforts. Without it, even the most promising strategy, inertia and internal resistance can derail it. In the case of mergers and acquisitions, teams from different cultures and systems are brought together, and governance helps align stakeholders in the clinical, IT, legal and financial sectors.
2. Decommissioned through an expandable “assembly line” operation – The scale and speed of applications rationalizing during M&A agreements requires accurate, efficient and repeatable processes. The most successful health systems view retirement as the “assembly line” of the factory. This approach includes phased planning for supplier and contract management, budgeting, data migration, compliance, and end-user support. In the first phase, the technical team should handle tasks such as data ingestion, conversion and migration. The next phase covers the actual retirement itself, as well as technical reviews, end-user support, and regulatory compliance. A structured “assembly line” approach turns application cleaning into repeatable business processes to reduce sprawl and unlock savings.
3. Establishing the long-term value of modern data support – Application rationalization is not a one-time cleanup, but a strategy to build a sustainable, innovative IT environment. The key is to have a modern data management platform that supports real-time access, vertical patient records, regulatory compliance, and advanced analytics. Rather than archiving data to passive, inaccessible silos, prospective organizations use active archiving solutions to seamlessly integrate with EHR workflows, allowing clinicians to retrieve longitudinal patient history in real time. These solutions can not only drive innovation, but also help health systems meet regulatory requirements, enhance cybersecurity, and reduce the burden of obsolete systems that keep risky obsolete.
Even with the volatility of healthcare M&A activities and the development of transaction structures, application rationalization remains a strategic leverage that should be embedded in investment papers from day one. A well-executed plan can not only reduce its spread or reduce costs; it can ensure that businesses, ensure compliance, and create conditions for innovation. By incorporating legacy data into active archives and modern data lake platforms, organizations unlock high-quality, real-time data, clinical trial matching, population health insights and predictive modeling that can power AI tools. In today’s turbulent financial environment, health systems are unable to ignore the validated ROIs that incorporate legacy data into active archives and modern data lake platforms.
Photo: Kritchanut, Getty Images
Jason Z. Rose of MHSA is a serial entrepreneur who brings 30 years of technological innovation, business development, strategy and leadership experience in healthcare. He is a visionary, with a good track record of continuing disruptive products from the concept of whiteboard to achieve business success. Jason is currently CEO and board member of Clearsense, a data support platform company that works with healthcare organizations to increase data value, governance and transparency.
This article passed Mixed Influencer Programs. Anyone can post opinions on MedCity News’ healthcare business and innovation through MedCity Remacence. Click here to learn how.
