Considering moving your health system ERP to the Cloud? Why now is the right time

Major health systems today are quickly becoming sprawling networks of facilities due to growing rates of mergers and acquisitions throughout the healthcare industry. While many health systems scale up to remain competitive, such organizational growth presents logistical challenges, especially when it comes to onboarding and managing new facilities.

This content is sponsored by Premier

"You see a newly formed health system that's trying to come together and operate as one, but you look under the covers and they have different systems, databases, reporting environments and processes," says Bill Marquardt, Vice President of Cost Management Solutions at Premier. "It's really hard to unify all that operationally."

Enterprise Resource Planning (ERP) platforms, which run the back-office operations of a health system, are one of the most significant solutions for health systems to unify. These software solutions play a major role in managing the daily operations of a health system — such as finance, supply chain and human resources — and are key to driving efficiency across the enterprise. But what happens when a hospital merges with a facility on a different ERP platform?

"Much of the efficiency that organizations hope to realize from a merger is dependent upon standardizing processes, centralizing services and eliminating waste," Mr. Marquardt says. "To do that, you really need to get to a standard system as quickly as possible."

Historically, it has been cost-prohibitive to deploy a new ERP platform at newly acquired facilities. The time and effort to make that switch were so significant that organizations deprioritized those projects. As a result, many health systems continue to use outdated systems that struggle to scale with the growing Mergers and Acquisitions (M&A) landscape.

Thanks to recent advances in technologies, health systems now have new cloud-based alternatives that boast rapid, cost-effective implementations for their future acquisitions.

Conventional ERP platforms struggle to scale with M&A growth

Healthcare companies announced transactions totaling about $156 billion in the first three months of 2018, making it the biggest first quarter for healthcare M&A in more than 10 years, according to Bloomberg.

The real work begins after the deal is closed. Newly affiliated facilities often use separate ERP platforms, and smaller non-acute providers or clinics may not have an ERP at all. This poses various issues for a newly merged health system, beginning with cost. When a health system uses multiple systems, it commits to paying for multiple products, which often require various cost-intensive upgrades at different periods of time or manual workarounds to share and exchange data.

Having disparate back-end processes at each facility also means a health system's purchasing and analytics systems aren't able to communicate with each other. Without an integrated ERP solution across a health system, top healthcare executives stationed at the organization's flagship hospital may be left in the dark about purchasing behaviors or financial performance at each affiliated facility.

At its core, the benefit of an integrated ERP solution across a health system is establishing a centralized place to manage operations and view analytics systemwide. Conventional, onpremise ERP solutions may take years to deploy and they include a range of costs to maintain, from purchasing on-site hardware to hiring a team of consultants. The scale of this type of investment leads many organizations to pause and delay efforts to integrate health system operations.

"There's a bit of a culture shift that is required," Mr. Marquardt says. "The traditional model of deploying software was finding space for an onpremise data center, standing up the system and then bringing in an army of consultants to go customize it. … It's a massive shift in mindset to say, 'Instead of flying in the army of consultants, let me use a cloud-based provider.'"

How cloud-based ERP platforms streamline consolidation and cut costs

In the era of multimillion and multibillion dollar mergers and acquisitions, health systems need flexible IT systems that deploy at scale. A next-generation cloud-based ERP platform offers one answer for health systems looking to assimilate new facilities in a comprehensive and lower cost way.

"Historically, ERPs were laden with hidden costs," Mr. Marquardt says. "It's the traditional iceberg model. You have to pay for the software, which is where everybody's eyes tend to go to, but you also have to look at all the costs underneath the surface."

Time-consuming costs "underneath the surface" include onpremise hardware, disaster recovery, backup plans and on-site system administrators — not to mention the expense of hosting a team of consultants to implement the system. Since legacy ERP platforms are often pulled from other industries, health systems often must tap consultants to customize their ERP for healthcare, according to Mr. Marquardt.

Cloud-based solutions tend to have a subscription fee model that is much more predictable and scalable. As you grow, your fees grow. So you don't have to overbuy, and hope to grow into an outsized solution. Cloud-based solutions also tend to include future enhancements, so you can avoid costly upgrades down the road. This approach offers a low total cost of ownership, in part because updates are baked into the fee a health system pays.

"It gets back to that iceberg analogy," Mr. Marquardt says. "In a traditional [onpremise] model, you get on version eight, and when you want to move to version nine, you have to bring on all those consultants again. In our world, you just keep paying your [software-as-a-service] fee, and we deploy new releases on a quarterly basis. You get the updates pushed to you in bite-sized chunks."

The need for speed

Since hospitals that affiliate with one another need to interoperate their data and systems as quickly as possible, speed is yet another critical factor for IT implementations. "The ability to move fast is a key driver here," Mr. Marquardt says. "I hear that every single day."

Healthcare's unique processes and data, and the direct impact on patient care, add a lot of complexity to the ERP implementation. Having a cloud-based solution designed for this market greatly accelerates the time to realize value.

"The traditional philosophy [was] you take a manufacturing-based system and bring in teams to customize it for you," Mr. Marquardt explains. "Hospitals tried to customize those systems to work in their organizations, but that could take five, six, seven years. … When you have a system designed for healthcare, it's very different."

Peoria, Ill.-based OSF Healthcare, one of Premier's members, experienced the company's focus on rapid implementation firsthand. In 2017, OSF Healthcare and Premier brought 12 facilities live on its new cloud-based ERP in less than 12 months. OSF Healthcare recently acquired two additional facilities from Chicagobased Presence Health in February. With the help of Premier's experts, OSF Healthcare helped the two facilities go live on its cloud-based ERP platform in just four months.

Beyond the platform: Making data in ERP solutions actionable

To draw out the full value of information housed in an ERP platform, hospitals see value in partnering with vendors that understand how to make healthcare data actionable for a range of issues, such as minimizing supply expenses or enforcing purchasing compliance.

"Of the ERP software vendors in the market, we're the only one that also manages data," Mr. Marquardt says. He credits Premier's work in this space to the company's 30-year background in group purchasing services, business intelligence and analytics. "Benchmarking and performance improvement are in our DNA," he says.

Mr. Marquardt noted three key benefits organizations gain from transitioning to cloud-based ERP systems with data and analytics capabilities built in.

1. Maintain data integrity. Clean, consistent and reliable data are critical to realizing the value of an ERP system and business intelligence tools. Without it, transactions fail, resulting in costly re-work, and stakeholders question the validity of analytics. Given Premier's long history with data, it maintains the essential vendor, item and pricing data that power ERP transactions and analytics. Premier can maintain this data in the ERP, keeping it current, and reducing the amount of manual work traditionally managed by hospital staff. As an added value, there is consistency between the data users see in their analytical tools and the ERP.

2. Workflow solutions that operationalize strategic decisions. When health systems manage their analytics and ERP systems independently, they struggle to fully implement change. But, by consolidating on a single platform, health systems can ensure they realize the value of strategic decisions, and enforce standardization and consistency. For example, after a supply chain committee determines the best brand of gloves to purchase based on quality and cost, supply leaders can use the ERP platform to standardize the type of gloves that departments may order enterprisewide. Standardizing SKUs helps improve purchasing compliance, ensuring a health system capitalizes on contracted savings. Analytics-enabled ERP platforms like Premier's make it easy to monitor the effects of these strategic business decisions in terms of cost savings and utilization rates.

Many health systems also partner with group purchasing organizations like Premier to drive financial performance and supply chain management across an enterprise, rather than relying on individual facilities to negotiate with vendors. By coordinating group purchasing of medical supplies and devices, healthcare leaders are able to tap into significant savings systemwide.

"Health systems have found all the low-hanging fruit. You're not going to find a whole lot of savings by negotiating the price of a box of Band-Aids anymore," Mr. Marquardt says. "What you really need to do now is start to look at, 'What is the impact of device selection, of drug utilization, on patient care?'"

3. Monitor business performance across disparate facilities. Performance metrics are yet another type of actionable data housed in Premier's cloud-based ERP platform. As hospitals and health systems continue to consolidate, they must maintain benchmarks across their flagship facility while simultaneously evaluating the financial performance of acquired hospitals, ambulatory facilities and physician practices.

When hospitals and executive teams can access benchmark data alongside a physician practice's data related to staffing, payer mix, procedure mix or referral patterns, leaders are able to make more informed decisions about budgeting and managing operations.

Mr. Marquardt says his goal is to pinpoint where facilities are losing money so health system leaders have the time, knowledge and resources to turn the problem around. "We think about our role not just as providing the technology, but providing the insight and data to help hospitals perform better," he says. "That's the endgame for us: performance improvement."


Healthcare M&A is set for a record year in 2018. However, to realize the full value of a new merger or acquisition, health system leaders need solutions that unify their network of facilities and streamline oversight of day-to-day operations across the system. A cloud-based ERP platform offers a solution that scales quickly across an expanding network, improving data visibility and eliminating redundant technologies.

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