As hospitals merge, what are the challenges for supply chains?

2017 has so far been a busy time for hospital mergers and acquisitions.

According to a recent analysis by Kaufman, Hall & Associates, LLC, hospital and health system partnership transactions increased in the first quarter of 2017 compared with the same time period in 2016. Between this and the announcement that OptumCare will acquire Surgical Care Affiliates, Inc., and the planned merger of Fairview and HealthEast, we’ve seen hospital M&A activity continue on an upward trend.

As more hospitals go through the merger process, one major challenge they face is merging their supply chains. I’ve worked closely with hospitals on integrating their supply chains after a merger, and have seen them run into a myriad of business process, technical, and cultural challenges. Based on my experiences, I’ve discovered a few key considerations for hospitals to keep in mind as they prepare to merge their supply chains. The following recommendations will help ensure a seamless integration.

Get executives involved early
It’s important to get supply chain executives involved in operations decisions from the very beginning of the merger or acquisition.

One proven method to foster executive involvement is to create a committee that includes top executives from both hospitals. Doing so presents an opportunity to bring together your top leaders to co-create a specific picture of what the combined hospital or health system will look like one year after the close of the merger. A committee can create a strong vision for the merger early on in the process that all the executives can agree to.

Use best practices when merging technologies and methodologies
Hospitals that are merging will more than likely use different supply chain and inventory management software, and may also use different suppliers – so it’s essential to get everyone on the same page, using the same tools and software, as early as possible. In fact, according to PwC’s Strategy& the success of mergers often relies on the early involvement of IT stakeholders in the planning and execution of an integration.

To help with this, have the hospitals do an audit of their IT systems and processes before the merger. PwC’s Strategy& notes that the first step during an integration should occur during the due diligence phase, which is when IT develops an initial, early understanding of all of the technological requirements created by the merger. Before anything else in the merger takes place, you should take this step first. It will help you determine the cost of maintaining two separate software systems, choosing one system over the other, or even upgrading to one brand-new system. All of these options have various costs and benefits associated with them, but you won’t know what they are until you have completed the audit.

In addition, your hospital systems may use different materials management information systems (MMIS) such as Lawson, PeopleSoft, MediTech, or a homegrown system. Visibility to the data early in the merger allows the supply chain to begin to plan and develop an action plan, identify teams to drive standardization and conversions. The standardization of the systems item master will be critical to the success of the integrated supply chain. Without a common item master, many of the savings advantages anticipated as a result of an acquisition will be minimized.

Remember the cultural implications
While the business process and technical challenges surrounding hospital mergers are important to consider, we cannot forget about the cultural implications. Merging two hospitals means merging two distinct company cultures, with different values and ways of operating. This also typically means navigating around physician preference. When transitioning to different medical devices and supplies such as surgical implants, tubing and catheters, and bone cement, it’s very likely that you’ll get push-back from doctors and clinicians who are accustomed to using their particular brand or type of supplies.

While preference around these supplies is to be expected, even seemingly innocuous supplies or a difference in the philosophy of how to introduce new products can stall an integration. While some hospitals put all new supplies through the Value Analysis process so clinicians have a voice, others will determine “me too” products can simply be changed. An example would be underpads. Some would consider this a “me too” product and make the change. Others in the newly merged facility may feel the underpad is a lesser quality, possibly a different size thus increasing the number of underpads used and ultimately increasing overall costs for the hospital.

One solution is to implement a value analysis process that includes clinicians and physicians. In this process, it is important to provide robust data to physicians, clinicians, and nurses to clearly show them that cost-cutting measures (like switching away from their favorite supplies) won’t hurt quality. The data should include quality, outcomes and financial information to ensure they are able to make evidence based decisions. When reliable data is shared, they see exactly how much something costs compared to the less expensive (and just as high-quality) alternative, it’s easier for them to understand why the switch is necessary.

Given all the hospital M&A activity afoot, sooner or later you might find yourself in the midst of your own hospital merger. By getting supply chain executives involved early on in the process, being thoughtful about how you combine technologies and methodologies, and being aware of the implications of merging distinct hospital cultures, your M&A transition will run much smoother.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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