Charting a Path to Health System Efficiencies Following a Merger

11 June, 2015

Charting a Path to Health System Efficiencies Following a Merger

A business plan of operational efficiencies can help a health system achieve large-scale gains in cost performance and organizational alignment following a merger or an acquisition.

By Brandon Klar, MHSA, Vice President, GE Healthcare Camden Group (via the June, 2015 issue of HFM Magazine)

Healthcare reform is driving an increase in health system mergers and acquisitions. Almost without exception, these moves are billed as an opportunity to reduce costs and leverage scale to improve care delivery. Unfortunately, many merged organizations fail to fully realize the operational health system efficiencies envisioned before the transaction. Once select management positions are integrated and group-purchasing contracts have been consolidated, integration efforts often slow considerably or grind to a halt entirely. This pattern is seen both with true mergers, where two organizations are combined to create a new entity, and with transactions in which an organization acquires and absorbs another organization.

This failure to achieve the full potential of a merger or an acquisition carries two risks. First, incomplete integration can actually increase system costs, particularly when the combined organization creates a new layer of corporate oversight on top of the two merged entities. Second, poor integration can create trouble with regulators. The Federal Trade Commission, state attorneys general, and other agencies often approve health system mergers based in part on promised operational efficiencies. When these efficiencies fail to materialize, regulatory bodies can take action.

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