Healthcare mergers and acquisitions (M&A) are bouncing back. A Jefferies survey revealed that 72% of healthcare executives and investors expect higher M&A levels in 2025. Moreover, private equity firms are ramping up activity. By mid-2024, buyouts in North America were already higher than all of 2023, showing renewed momentum despite tighter regulations.
As your healthcare organization navigates this boom, you’re likely balancing growth opportunities with significant challenges, such as liability risks, cybersecurity gaps, and regulatory hurdles. To stay ahead, focus on more than just damage control. A strong insurance plan and forward-thinking risk management puts you in control and ready for anything.
Tackling insurance challenges in healthcare M&A
M&A transactions often bring hidden insurance complexities. Merging businesses with different policies can create coverage gaps, overlaps, or disputes that lead to unexpected liabilities. By addressing these issues upfront, you can avoid costly surprises and protect your organization.
Managing tail coverage costs
Tail coverage, which extends malpractice insurance to cover claims made after a policy ends, is a common pain point in healthcare M&A. The cost of this coverage is frequently underestimated, leading to financial strain post-acquisition. This issue is particularly pronounced in smaller practices with high physician turnover.
How to stay ahead:
- Clearly define tail coverage responsibilities in acquisition agreements.
- Obtain detailed cost estimates early to incorporate these expenses into your deal budget.
- Consider working with an insurance broker who specializes in healthcare M&A to ensure accurate cost assessments.
Being proactive about tail coverage can prevent disputes and safeguard your financial stability.
Closing policy gaps and addressing fragmentation
Disparate insurance policies are a common challenge in M&A, often leaving critical exposures uncovered.
Smaller practices may lack essential coverage, such as cyber liability insurance to protect against data breaches and Directors and Officers (D&O) liability insurance to shield leadership from legal claims.
Ways to proactively approach policy discrepancies:
- Engage brokers early to review existing policies across entities.
- Identify and address coverage gaps to ensure seamless integration.
- Consolidate policies where possible to reduce redundancies and simplify administration.
Streamlining your insurance coverage not only reduces liability risks but also makes managing claims more efficient.
Addressing cybersecurity vulnerabilities
Cybersecurity is another major concern during M&A. IT systems from different entities often lack integration, creating vulnerabilities that cybercriminals can exploit. Smaller practices with limited resources are particularly at risk, as they may lack robust cybersecurity measures.
Mitigation strategies:
- Conduct a comprehensive cybersecurity audit during due diligence.
- Ensure appropriate cybersecurity insurance is in place across the merged entity.
- Align IT systems post-merger to eliminate vulnerabilities and improve protection.
Taking these steps early in the process can help you avoid the fallout from costly breaches.
Navigating workforce turnover and recruitment costs
Healthcare M&A often triggers staffing challenges. Physician turnover and shifting workforce preferences—such as the rise of 1099 or per diem arrangements—can lead to higher recruitment costs and hidden liabilities. These disruptions can affect both the quality of care and the financial success of the merger.
How to mitigate these challenges:
- Offer competitive benefits and flexible work arrangements to retain talent.
- Budget for recruitment costs when evaluating the financial impact of the deal.
- Develop a clear retention strategy to reduce disruptions during the transition.
Planning for workforce changes ensures smoother operations and protects your investment.
Regulatory and compliance hurdles
The healthcare sector is under increasing regulatory scrutiny, with regulators closely examining M&A deals for antitrust concerns and their impact on patient care. This scrutiny makes compliance an important focus area during due diligence and integration planning.
Conducting rigorous due diligence
Organizations often inherit compliance risks from the entities they acquire. Failing to uncover these liabilities during due diligence can lead to fines, reputational damage, or operational setbacks.
Focus areas for due diligence:
- Review compliance histories to identify past violations or risks.
- Investigate liability records to uncover hidden exposures.
- Work with legal and insurance experts to mitigate inherited risks.
Thorough due diligence reduces the likelihood of costly surprises after the deal closes.
Managing multi-state compliance complexities
Multi-state acquisitions introduce varying regulatory requirements, from tax laws to patient care standards. These differences can complicate operations and increase the risk of regulatory penalties.
Here are some best practices:
- Assign an integration team to align workflows and ensure compliance with federal and state laws.
- Partner with brokers experienced in multi-state operations to navigate regulatory complexities.
- Regularly review compliance measures to stay ahead of changing regulations.
By addressing these challenges head-on, you can avoid regulatory pitfalls and focus on successful integration.
Mitigating liability risks in M&A
Liability risks are among the most significant challenges in healthcare M&A. From malpractice disputes to rising nuclear verdicts, these risks can derail deals and threaten your organization’s financial health.
For example, unresolved tail coverage responsibilities often lead to post-merger disputes, while hidden malpractice claims from acquired practices can surface unexpectedly.
Ways to manage liability risks:
- Establish clear agreements about who will cover tail costs during negotiations.
- Conduct a detailed review of past claims to identify potential liabilities.
- Secure excess liability coverage to protect against high-value malpractice judgments, also known as nuclear verdicts.
By proactively managing liability risks, you can ensure smoother transactions and avoid unexpected costs.
The value of tailored insurance solutions
Generic insurance plans rarely address the unique risks of healthcare M&A. Tailored solutions provide focused protection, making transitions smoother and more secure.
Key benefits of tailored insurance solutions include:
- Consolidated policies: Simplify claims management and reduce duplicate coverage.
- Customized risk management Plans: Address specific risks, such as cybersecurity or D&O liability.
- Proactive onboarding support: Align new entities with organizational standards to minimize liabilities.
Partnering with brokers experienced in healthcare M&A ensures your insurance coverage aligns with your strategic goals.
Looking ahead: preparing for M&A success
Healthcare M&A presents significant growth opportunities, but success requires proactively managing risks. By addressing liability exposures, strengthening cybersecurity, and prioritizing compliance, a customized insurance strategy can turn M&A challenges into long-term success.
Want to learn more?
Connect with the Risk Strategies Healthcare team at healthcare@risk-strategies.com
