Transforming healthcare: Unlocking success through human capital in M&A 

The healthcare industry is at a pivotal moment. Health systems and hospitals face increasing pressure to transform — to improve patient outcomes, boost operational efficiency, and ensure financial sustainability. Meanwhile, private employers, who have long shouldered the costs of healthcare inefficiencies, are playing an increasingly important role in driving reform by investing private capital in the healthcare economy.

Healthcare organizations are increasingly adopting growth strategies to enhance their service offerings and expand their market presence, very often pursuing mergers and acquisitions (M&A) to accelerate their growth and strategic objectives. However, while transactions offer significant potential, many health systems struggle to fully realize the operational and financial benefits these deals can deliver. Too often, essential integration work remains incomplete, leaving systems fragmented and transformation goals unmet.

Whether your organization is considering its first deal or has extensive experience with inorganic growth strategies such as M&A, now is a critical moment to understand the importance of addressing human capital priorities throughout the deal lifecycle.

Transactions have long enabled health systems to expand their capabilities, achieve scale, and develop new revenue streams. Yet, integrating organizations with distinct cultures, leadership styles, and operating models presents formidable challenges. Common pitfalls include incomplete integration of systems, processes, and, critically, people. All of these challenges can erode the intended value of a deal.

Leading organizations are pursuing several approaches to inorganic growth:

• Capability-driven growth: Organizations use this strategy to build or acquire specialty centers that concentrate high-value services and strengthen referral networks. Success depends on clinical program standardization, targeted specialist recruitment, and the development of strong referral pathways. Institutions have been pursuing or appear to be pursuing this model.
• Platform growth: Other organizations are pursuing hospital acquisitions and vertical integration to expand acute care capacity and streamline operations across ambulatory, post-acute, and payer relationships. This approach prioritizes platform standardization, margin improvement through scale, and strategic capital allocation to high-return service lines.
• Affiliation and network expansion: Many organizations broaden their geographical reach through affiliations rather than full ownership. Healthcare providers use this model to align governance, standardize clinical protocols, and advance network-wide population health initiatives.
• Ambulatory surgery center (ASC) and outpatient platform expansion: Organizations are expanding ASC and outpatient platforms to improve procedural access, lower costs, and increase throughput. These strategies rely on outpatient conversion models and payer contracting to shift care delivery to more efficient settings.
• Outpatient procedural access optimization: Organizations are redesigning procedural access points to move low-acuity volume away from higher-cost care sites. This improves patient convenience while supporting site rationalization and clinician alignment and delivering more efficient referral pathways.

Together, these varied inorganic growth strategies reflect the dynamic and multifaceted nature of healthcare expansion and transformation.

The Reuters’ 2026 State of U.S. Healthcare report highlights transformation as a main theme for the industry. It also emphasizes the workforce challenges involved, such as recruiting talent (51%), managing burnout (50%), and closing skills gaps (47%).  In M&A, these challenges can be exacerbated by a lack of clarity on future objectives as well as short and long term integration goals. This, in turn, can increase operational complexity and worsen outcomes for all involved.

The Reuters’ report also examines how organizations are responding. It notes, “although there are some concerns about the impact on jobs and patient experiences, organizations are investing in administrative-reducing technologies (66%) and professional development (48%). These investments reflect a shift towards empowering existing teams while easing operational load.”

True transformation requires more than financial and operational alignment — it demands a deliberate and sustained focus on the human side of change. Healthcare transactions and transformations depend on caregivers and staff remaining engaged, motivated, and productive well beyond the deal’s closing date.

Despite many successes across hospital and health systems transactions, the reality is clear: health system integrations are inherently difficult. The following three cases illustrate the types of integration challenges organizations face — each one reflecting issues Mercer has helped address.

 

The challenge: Over the last few years, a regional health system has expanded its reach by acquiring several smaller healthcare facilities across three US states. This expansion encountered significant integration challenges, including:

• Complex labor relations caused by differing union contracts — these complicated workforce standardization efforts.
• Employee engagement issues — these stemmed from a post-pandemic divide between administrative staff with remote work options and on-site clinical workers.
• Rising costs from increased reliance on contingent staffing, including travel nurses — these strained budgets while limiting cost transparency.
• Political pressures to lower healthcare costs and improve quality — these created tension among regulatory expectations, community interests, and union demands. This made workforce planning particularly challenging.

The outcome: Successfully integrating the newly acquired entities required the organization to align union agreements, bridge employee divides, manage staffing costs transparently, and balance competing stakeholder priorities.

The challenge: Over the past 15 years, a leading health system acquired multiple community hospitals, but never integrated key functions such as HR and IT. The result was a fragmented system of compensation, benefits and retirement programs. This encouraged some employees to move between hospitals to take advantage of inconsistencies and get higher pay or better paid leave policies. This “benefit shopping” increased costs at a time when budgets were tight and margins were thin.

The outcome: This organization conducted an overall audit of all its HR components. It then prioritized areas that could be quickly integrated. It also built the operational infrastructure needed to centralize and harmonize these programs – this was a key step that accelerated the rest of the integration. This enabled the organization to create a change management and communication plan — one that was rooted in a systematic approach to managing its talent and aligning it to the needs of its workforce strategy. The change required was substantial. However, clear evidence of past employee behavior helped build support for the changes, even years after the original acquisitions had closed.

The challenge: Following a merger, a newly combined healthcare organization needed to rapidly harmonize core workforce programs across the enterprise, including health and retirement benefits, tuition reimbursements, and paid time-off policies. Leadership recognized that delays in aligning these programs could create employee confusion, undermine workforce stability, and slow the realization of merger value. At the same time, the organization faced intense competition for talent from both academic institutions and other healthcare providers in its market, making it essential to preserve the benefits most critical to attraction and retention.

The outcome: To address these risks, the organization moved quickly after close to redesign and harmonize key workforce programs (this was done within 10 months). This effort was built on deep cross-functional collaboration and operational input to ensure the new programs reflected the needs of the combined workforce and supported broader business goals. By taking a proactive and disciplined approach, the organization captured seven-figure savings through program harmonization. At the same time, it preserved high-value benefits — such as tuition support and retirement offerings — that were especially important for attracting younger talent and retaining experienced nursing staff.

What works? Mercer’s research into People Risk & M&A identifies seven critical human capital levers that health systems must actively manage throughout every phase of an M&A transformation.

These levers are not one-time fixes but ongoing priorities. They require deliberate focus from pre-deal planning, through post-merger integration and on, into long-term value realization. This will help ensure that the merged organization can achieve sustainable operational, workforce, and patient-care outcomes.

The need for strategic recalibration

As health systems continue to pursue transformation through M&A, a strategic recalibration of the approach to human capital is essential. Organizations must continuously reassess their strategies to address emerging challenges and shifting priorities across the healthcare landscape. 

This ongoing recalibration will keep integration efforts on track and ensure the full potential of transformation is realized — driving better patient outcomes, operational efficiency, and financial stability.

Human capital can drive the value of PE investment

Data shows one of the most critical challenges facing healthcare is a shortage of qualified talent. New investors, such as private equity (PE) firms, can help meet this challenge — particularly when organizations actively manage the key levers of human capital.

For example, PE owners frequently invest in technology at a greater pace and scale, helping to alleviate workforce shortages, improve productivity, and reduce staff burnout. In this context, health systems should prioritize technology investments as a key strategy to address labor challenges and enhance operational resilience.

At the same time, organizations must protect the talent and operational capabilities that underpin care delivery. While PE investment may create opportunities to optimize operations through the centralization of support functions (such as finance, HR, and IT), long-term success depends on understanding, retaining, and supporting the workforce throughout the transition.

Focus on people

By focusing on Mercer’s seven human capital levers and committing to ongoing recalibration, health systems can overcome the common integration hurdles and build stronger, more resilient organizations positioned for long-term success.

This perspective is grounded in Mercer’s extensive People Risk & M&A research, which demonstrates the critical role that human capital plays in enabling successful healthcare transformation.

Whether your healthcare organization is evaluating potential M&A opportunities, actively navigating a transaction, or addressing the challenges of incomplete integration from previous deals, Mercer can help at every stage of the journey.

To learn how Mercer can support your organization in realizing the full value of healthcare transformation, reach out to Carly McCoy, US M&A Healthcare Industry Leader, to set up a discovery call.