Trends in hospital mergers
February 9, 2017
Tim Brown, Chief Business Information Officer
According to a study from the Advisory Board, the number of hospital and health system M&A transactions have doubled over the last four years. One of the major trends that drives this merger activity is the desire to gain more control over care delivery as the cost of healthcare rises along with reimbursement pressures. The Affordable Care Act, also a major driver, aims to deliver value to patients with better outcomes (instead of paying providers based on individual procedures). Of course, now that a new president has taken office, the fate of the ACA is a bit of a question mark. However, I doubt the pressure for healthcare systems to add more value and deliver higher quality will go away.
How can hospital mergers combat the rise in healthcare costs?
Consolidations and price negotiations
One way that providers can save costs after a merger is by consolidating supply chain systems to leverage better price negotiations for regularly procured items and devices, and concentrate on using fewer vendors that add more value.
Providers can also improve costs and margins associated with their own employees' medical expenses with more leverage to negotiate with insurance companies, offer better prescription plans that include generic or low-cost pharmaceuticals, and offer wellness programs to employees at scale. When healthcare organizations consolidate under one umbrella, they can choose one method and apply it across their operations to drive efficiency.
Gain access to larger patient pools to improve care
Executives have a positive view of healthcare mergers and acquisitions because they lead to greater efficiency, higher revenues and an opportunity to converge offerings. For example, in a merger of two cancer centers, it's possible that the coming together of two groups of oncologists will create a larger group of patients for clinical trials, share patient data to improve care modalities, or help the center focus on making outpatient care more convenient.
Frequently healthcare organizations go through a merger or acquisition and continue to use their existing software applications. Cost reductions are possible when the application portfolio is reduced to leverage common applications and workflows across the enterprise. This yields software maintenance savings, and labor savings in IT, just to name a couple examples.
Technology needed for streamlining data exchange
Hospitals need technology that can facilitate collaboration and easy sharing of patient records. Many departments keep records on their own systems, which creates islands of information, a problem that can be exacerbated after a merger. But by having the right technology in place, the exchange of patient data can become seamless, and can lead to reduced costs.
Finally, mergers can help bring down the overall cost of care by streamlining expenses across facilities, resulting in greater efficiencies and scale.
For more information on how your organization can ensure a smooth and effective M&A process, read our how-to guide: 9 Tips for Successful M&A Transactions. Has your organization experienced a merger or acquisition? Please share your experiences below.
- North America