The highest year-to-date volume for healthcare mergers and acquisitions (M&A) in the U.S. occurred during the first five months of 2015-reaching $241B-according to a report from global management consulting firm Accenture. The firm predicts that acquisitions of non-acute providers will reach 84 percent of the total acquisition volume by 2018.
While healthcare providers are merging in an effort to cut costs, increase quality, and gain the economies of scale required to survive in a value-based reimbursement environment, Accenture estimates that at least “10 percent of the anticipated cost savings are left on the table.” The firm urges providers maximize the deal’s long-term impact on the organization rather than treat is as a one-time opportunityto create a new revenue stream.
This same strategic approach should apply to the provider’s operations. When a provider merges with or acquires another organization, it is faced with the challenge of integrating disparate technology systems and data that will ultimately drive system-wide clinical, business, and financial performance. In many cases, both organizations have not taken steps to get their operational house in order prior to the acquisition, particularly when it comes to supply chain data and processes.
The Challenges and Opportunities of Supply Chain
During a merger, a provider organization has countless issues to address–from changes in leadership to shifts in clinical service offerings. While the integration of supply chain technology, processes, and data may not be at the top of the list, it is critical to achieving the goals of the acquisition.
“Anytime a healthcare provider merges, both entities are bringing to the table their own suite of supply chain solutions, processes, and data”
Anytime a healthcare provider merges, both entities are bringing to the table their own suite of supply chain solutions, processes, and data. Even if they are using the same vendor for their enterprise resource planning system or materials management information system (MMIS), it is likely they are running different versions of the technology and have configured it in different ways.
At the heart of the supply chain technology infrastructure is the item master and vendor master, which togetherserve as the “source of truth” for vendor and product data. If one or both of the providers’ item masters contain inaccurate, incomplete, or duplicate information, they cannot rely on analytics performed on this data. In other words, a provider organization cannot control supply costs if it does not know what it is purchasing, from whom and at what price. This problem is compounded when the provider has merged with another entity and is trying to realize cost savings through vendor consolidation and contract optimization.
The item master often feeds product and pricing data to downstream systems, including those used by clinicians, and value analysis and finance teams. If a provider organization does not address its data quality issues up front, this will undermine the goals of the merger. For example, if the product and pricing data feeding an OR system is inaccurate, the patient charge will be inaccurate, potentially leading to revenue loss for the organization.
Another consideration is patient safety. If inaccurate product data is being fed to a patient’s electronic health record, the organization will not have accurate information on which patients were treated with which products. In the case of an adverse event or recall, the provider will face an uphill battle trying to identify the patients that received the faulty device, increasing the risk for harm, not to mention liability.
How to Get Your House in Order
Whether your organization is making the acquisition oryou are the one being acquired, getting your supply chain house in order prior to the transaction is critical to operational, clinical, and financial success. Here are three tips to prepare:
1. Establish Your Source of Truth: Whatever your position in the M&A, take steps to improve your master data. This includes correcting errors in vendor, products and pricing; removing duplicates; and infilling incomplete information. Enriching your data with Healthcare Common Procedure Coding System (HCPCS) codes can help drive accurate reimbursement and greater revenue capture.However, it cannot end there. Put technology and processes in place to maintain item master integrity moving forward.
2. Control Your Contracts: You need to know from whom you are purchasing products at what prices before you can tackle your supply spend either alone or in conjunction with your newly merged entity. Use technology to gain visibility into your local and group purchasing organization (GPO) contracts, keep contract pricing up to date within your systems, and align contracts to products during the purchasing process.
3. Prepare Your Systems: In an ideal world, the provider organizations involved in the merger would migrate to the same ERP or MMIS system as part of the transition. However, in reality, this is unlikely to occur in the face of all of the other challenges healthcare leaders will be tackling as they merge clinical and business operations. To ease the transition and set the stage for system integration and data sharing, upgrade your ERP or MMIS to your vendor’s latest version. The added functionality should help support future data integration and consolidation.
For those who are acquisition or merger targets, properly preparing your supply chain systems and data can increase your value in the marketplace. For an acquiring organization, a provider that can accurately present the state of its supply chain is a much better target than one that is burdened with bad data,disjointed systems, and questionable financials.
For those in the position to acquire, preparing your supply chain data and systems ahead of time will make the transition easier and hasten the velocity to value. Furthermore, getting your house in order so that you can understand your supply spend can help solidify your financial position, potentially making it easier to secure the required funding.
One final point–you cannot do it alone. Hospitals are in the business of providing patient care. Be sure to rely on your supply chain strategic partners, such as your technology vendors, GPOs, and service providers when making improvements. They can offer the strategic guidance you need make transitions more efficient and effective.