Come Together : An Empirical Investigation of EHR Adoption, Mergers, and Survival in the US Healthcare System

How does the adoption of enterprise information systems (EIS) affect M&A activity in large organizations? Prior scholarship suggests EIS adoption dramatically increases the agility of the firms and facilitates streamlining the organization around competitive advantages. However, recognizing that EIS are costly, practical considerations would suggest that such systems would incentivize the merging of organizations to distribute fixed costs via economies of scale. We examine whether such systems contribute to the contraction or expansion of organizations by examining M&A activity in the US healthcare system after the adoption of electronic health records (EHR). In doing so, we investigate the effect of EHR adoption on both the survival of hospital systems and their acquisition decisions. Analysis of 699 mergers between 2007 and 2014 suggests that while EHR adoption significantly increases a hospital’s likelihood of survival, it also makes them less desirable acquisition targets. Thus, interested acquirers prefer to target non-EHR adopting hospitals, likely because of the challenges of re-integrating an established EIS. Secondary dyadic analysis shows that if there is a match between vendors of the EHR between the acquirer and acquiree, this increases the likelihood of merging. Thus, acquirers prefer hospitals that have not digitized, unless they share vendors. Practical and theoretical considerations are discussed within