4 Common Issues in Healthcare Mergers and Acquisitions
Mergers and acquisitions within the healthcare industry have been the cause for much debate over the years, as healthcare professionals analyze whether an M&A process helps organizations to thrive in increasingly competitive healthcare markets or whether it works to drive up costs for patients.
The jury is still out. Many of these issues only arise due to very specific market conditions. Not only that, the amount of M&A processes being pursued within healthcare is rising. According to research by Fortune, the deals made during mergers and acquisitions within healthcare in 2019 rose by 26% - hitting $533 billion.
While the impact of COVID-19 on these deals is yet to be felt, it remains an advantageous avenue for organizations to pursue. But what are the common issues in healthcare mergers and acquisitions?
- Failed Cultural Integrations
- Standardizing Operational Procedures
- Supply Chain Risks
- Reduction in Care Quality
Failed Cultural Integrations
Imagine, for example, that two private hospitals are merging into one corporate entity. Aside from the complex operational changes, there’s also the issue of bringing two teams together. This could be thousands of people, all very used to the way they normally work. While there will still be a physical distance between the two sites, culture is something that can and should span that distance.
While Electronic Health Records (EHR) and Electronic Patient Records (EPR) are relatively simple to marry, many clinicians and key staff will be working as if their hospital is still an independent entity.
The key problem is that sometimes this can go unnoticed if the two hospitals are doing well financially - it takes a keen eye to spot inefficiencies brought about by a lack of cultural integrations.
This type of issue has the potential of increasing operational costs. Staff are unsure about the correct working procedures or administrative processes, agreed upon by the integrated management but not accurately communicated business-wide. This could result in mismanaged patients, poor results and even costly mistakes.
Standardizing Operational Processes
Another issue to focus on is standardizing operational processes. This is especially important within entities that provide care, as care variation from one site to the next can impact quality or worse - patient health.
Structural change like this isn’t easy - it requires dedication, communication and a lot of training. But it’s not impossible. Overall, it can influence improved behavioral changes. However, remember that all changes need to reflect the needs of the staff. Something implemented universally that only benefits or works for 50% of healthcare providers isn’t something worth pursuing.
Clinical practice unification is the best way of ensuring that what were two or more separate healthcare providers now view themselves as a collective.
Supply Chain Risks
For private healthcare providers or medical companies, supply chains are crucial. Following a merger or acquisition, they can be affected. For these businesses, supply chain considerations may take the form of:
A focus on physician preference items. Two or more teams may find they disagree on what supplies are needed, which puts pressure on clinician-led supply decision-making.
Supplier contracts. Two or more entities merging will be bringing their contracts with third-party suppliers and businesses with them. It might be the case that two separate contracts essentially provide the same thing, so recourse must be taken to determine which contract is continued.
Supply chain vendors may come under strain if they’re needed to supply specific equipment for another site - although this is a less common problem.
During the merger, there can be no direct impacts on the ordering or obtaining of key supplies needed for healthcare.
In most cases, the costs of supplies will increase post-merger, almost immediately. This is to be expected, as two separate market shares become one, which can drive up prices, especially if that market share is a large one.
It was discovered by the National Bureau of Economic Research that acquired private hospitals could see savings of 1.5% within their supply chains. However, on the other hand, the acquiring party saw costs rise by around $300 per year.
Reduction in Care Quality
Some people will implicitly believe that the bigger the system, the better the healthcare. This isn’t true across the board. In some cases, consolidating systems can increase patient risk for a time.
It comes down to an issue we’ve already mentioned - clinical variation. Merged systems have different ways of doing things, meaning that Care Variation Reduction (CVR) is a common problem within healthcare M&As.
The two parties need to approach the process with foresight and caution. There needs to be an early focus on capturing similarity within your care offerings, alongside a singular approach to IT and administrative tasks. In the best-case scenarios, this is implemented before the actual merger is completed.
Ask yourself the following questions:
Can you accurately consolidate systems into something that performs better?
Will you be able to gain buy-in across the separate workforces for the M&A process?
What are your current similarities and how can you expand upon them?
How compatible are your current systems?
Each answer needs to be explored in great detail. While this may seem negative, it’s actually a highly important number of considerations. At the end of the day, healthcare is about providing quality care and attention to those who need it and your service offering can’t afford to suffer because of an ill-prepared merger or acquisition.
These aren’t the only pitfalls common to a mergers and acquisitions process. To explore more of them and, more importantly, find out how to overcome them, explore our guide.
Avoiding The Pitfalls of Mergers and Acquisitions
M&A can sometimes create organizational structures that are messy, ill-defined or straining under their own size and weight. Non-compatible IT systems, legal issues, ineffective communications… The list of pitfalls can seem insurmountable.
However, no problem is impossible to solve. Your stakeholders need answers just as much as you. To begin to find them, download our useful guide, ‘Mergers And Acquisitions: The Common Pitfalls and How To Evade Them’. Inside, you’ll find a wealth of insight into the M&A process and how to make it a successful one.
Click this link to download your guide.
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