In healthcare merger and acquisition (M&A) transactions, the focus often centers on closing the deal, while the more complex, and frequently underappreciated, challenge lies in ensuring the transaction delivers on its strategic and financial promises post-close. A 2023 PwC survey found that just 14% of companies across industries reported realizing substantial success across strategic, operational, and financial dimensions following a merger.(1) In real-world cases, Steward Health Care, once the largest private for-profit hospital system in the United States, filed for Chapter 11 bankruptcy in May 2024. Its 2017 acquisition of IASIS Healthcare, valued at approximately $2 billion, significantly expanded its hospital network but introduced substantial integration challenges that contributed to its eventual financial decline and bankruptcy.(2)
As hospitals, private equity firms, and physician groups pursue joint ventures, mergers, and partnerships amid a focus on value-based care and cost containment, effective integration is critical, particularly in today’s capital-constrained environment.
The healthcare M&A landscape is evolving rapidly. Recent trends show a growing focus on value-based care models, physician-hospital collaborations, and consolidations driven by cost containment and market positioning. In this context, the need to focus on post-transaction value realization has become more important than ever.
Value realization is the critical phase of a healthcare M&A transaction where the strategic, financial, and operational goals envisioned at the time of the deal are actually achieved. High interest rates and capital costs now compound these challenges. The Federal Reserve’s monetary tightening has led to increased borrowing costs, making it more expensive for healthcare organizations to finance mergers and acquisitions. Additionally, tariffs on imported medical equipment and supplies can affect capital expenditures and day-to-day operating costs.
Pre-transaction valuation analyses are typically developed based on go-forward pro forma projections. Oftentimes, those projections assume competent management, operational efficiency, and undisrupted patient flow post-transaction. However, in reality, without strong integration planning, anticipated value could quickly erode. For example, a hospital acquiring a physician-owned ambulatory surgery center may project stable or improved case volume and enhanced payer contracts. However, misaligned incentives or physician disengagement during integration can erode value, leading to reduced case volume and financial underperformance.
For physician investors, hospitals, and private equity sponsors, realizing the full value of a transaction and enhancing its value requires planning, execution, and alignment well beyond the closing date.
Valuation is often viewed as a regulatory necessity to ensure fair market value and compliance with laws like the Stark Law or the Anti-Kickback Statute. However, when leveraged strategically, valuation becomes a powerful tool for driving successful integration and ensuring value realization. Here’s how:
Identifying Key Value Drivers: Valuation pinpoints key value drivers, such as physician retention, case migration, or cost savings. Based on identified key drivers, integration teams can then prioritize efforts and key resources to ensure the high-impact areas are preserved and enhanced.
Establishing Realistic Benchmarks and Key Performance Indicators: Valuation helps establish clear and realistic financial and clinical benchmarks, such as revenue targets, operating margins, or expense ratios targets. By modeling key performance indicators based on valuation projections, integration teams can monitor progress and pivot if results fall short.
Aligning Stakeholders: Valuation helps quantify the benefit of integration and helps keep stakeholders on board. Rather than valuing the target business in isolation, stakeholders could model expected synergies, margin improvement, and growth scenarios to understand how and when value is created, and what operational levers must be pulled to achieve the targeted value realization.
Effective utilization of valuation in post-transaction integration does not necessarily require an independent valuation annually. Instead, healthcare organizations should adopt a structured approach to leverage the initial valuation and adapt it over time. This involves using the pre-transaction valuation as a tool to extract key value drivers and developing an integration roadmap accordingly, monitoring these metrics monthly or quarterly, and comparing actual performance against projections. Instead of routine annual valuations, targeted valuation updates can be conducted at key integration milestones or when material changes occur, in order to assess the impact on value and guide strategic adjustments accordingly.
Ultimately, valuation is not a one-time exercise to check the compliance box. In an era of rising costs and intense security, valuation can be utilized as a cost-effective strategic guidepost. When used effectively, it can bridge the gap between deal execution and long-term value realization, providing a transparent, data-driven path for turning assumptions into outcomes.
References
Transact to transform: PwC’s 2023 M&A integration survey. PwC. https://www.pwc.com/us/en/services/consulting/deals/library/ma-integration-survey.html . Accessed May 5, 2025.
Vogel S. What’s going on at Steward Health Care? Healthcare Dive. https://www.healthcaredive.com/news/steward-health-care-distress/706940/ . Accessed May 5, 2025.