Healthcare mergers and acquisitions continues to ebb and flow. Activity peaked in 2024 with a wave of large-scale deals, but now healthcare organizations are adopting a more cautious approach – driven in part by broader economic headwinds such as proposed Medicaid cuts, evolving tariffs, and uncertainty around the 340B program. Analysts anticipate that merger activity will continue, but in fits and starts, shaped by new strategies and innovative deal structures that increasingly involve a mix of large systems, regional players, and nontraditional partners.
Regardless of deal cadence, M&A transactions remain inherently complex, bringing together not just financial models, but thousands of employees, millions of patients, and expansive physical and digital infrastructures. One of the most costly and consequential challenges is IT integration.
Over the last decade, health systems have digitized rapidly, resulting in application environments bloated with redundant, underutilized, and legacy systems. Analysts estimate that 20 to 30 percent of IT system resources within merged health systems are duplicative or obsolete. Left unchecked, these systems continue to drain resources, introduce cybersecurity vulnerabilities, and slow down innovation long after a deal closes. This is where application rationalization becomes not just helpful, but essential.
Application rationalization is a strategic lever that can deliver immediate ROI and long-term enterprise value. By investing the capital budgets in rationalization and archiving implementations, health systems can significantly reduce operating expenses — lowering licensing costs, infrastructure demands, and support burdens. At the same time, they reduce risk, improve data access, and set the stage for scalable innovation.
By making application rationalization a core part of the M&A strategy from the outset, healthcare organizations can achieve immediate cost savings, reduce risk, and lay the groundwork for a lean, unified, and future-ready enterprise.
Here are three key steps:
1. Embed cross-functional governance from day one – Strong governance is the foundation of any successful application rationalization effort. Without it, inertia and internal resistance can derail even the most promising strategies. In an M&A scenario, where teams from different cultures and systems are coming together, governance helps align stakeholders across clinical, IT, legal, and financial domains.
2. Operationalize decommissioning with a scalable “assembly line” – The scale and speed of application rationalization during an M&A deal require precision, efficiency, and repeatable processes. The most successful health systems treat decommissioning like a factory “assembly line”. This approach includes phased planning for vendor and contract management, budgeting, data migration, compliance, and end-user support. In the first phase, tech teams should tackle tasks like data ingestion, conversion, and migration. The next phase covers the actual decommissioning itself, as well as technical review, end-user support, and regulatory compliance. A structured “assembly line” approach transforms application cleanup into a repeatable business process that reduces sprawl and unlocks savings.
3. Build for long-term value with modern data enablement – Application rationalization is not a one-time cleanup — it’s a strategy for building a sustainable, innovation-ready IT environment. The key is having a modern data management platform that supports real-time access, longitudinal patient records, regulatory compliance, and advanced analytics. Instead of archiving data into passive, inaccessible silos, forward-thinking organizations use active archiving solutions that integrate seamlessly with EHR workflows — enabling clinicians to retrieve longitudinal patient histories in real time. These solutions not only drive innovation but also help health systems meet regulatory requirements, enhance cybersecurity, and reduce the burden of maintaining risky, outdated systems.
Even as healthcare M&A activity fluctuates and deal structures evolve, application rationalization remains a strategic lever that should be embedded in the investment thesis from day one. A well-executed plan doesn’t just reduce IT sprawl or lower costs; it secures the enterprise, ensures compliance, and creates the conditions for innovation to thrive. By consolidating legacy data into active archives and modern data lakehouse platforms, organizations unlock high-quality, real-time data that can power AI tools, clinical trial matching, population health insights, and predictive modeling. In today’s volatile financial climate, health systems can’t afford to overlook the proven ROI that comes from consolidating legacy data into active archives and modern data lakehouse platforms.
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