More on Mergers & Acquisitions

Healthcare mergers will continue to surge thanks to benefits of integration, CEO predicts

Affiliation and coalition have advantages like combining of operations and increased system efficiency; full integration provides the most benefit.

Jeff Lagasse, Associate Editor

Swisslog headquarters in Buchs, Switzerland (Google Earth)Swisslog headquarters in Buchs, Switzerland (Google Earth)

Hospitals and health systems have been pursuing affiliations, acquisitions and mergers at a fever clip, and according to the CEO of Swisslog Healthcare, it's a trend that is likely to continue in 2017 and beyond, largely out of necessity.

Stephan Sonderegger, who has lead the healthcare automation solutions company since 2014, has authored a paper in which he asserts that rapid growth through mergers and acquisitions is the path to increased market share and volume gains, as well as greater efficiency and economy of scale. That translates to cost reduction and the ability to better leverage more favorable payment arrangements.

When it comes to teaming up, he wrote, there are three main stops on the partnership spectrum: Affiliation, coalition, and what Sonderegger calls "systemness," which is the realization of a fully unified and integrated system. While affiliation and coalition have their advantages, including the combining of operations and increased system efficiency, it's systemness that provides the most benefit, with a common culture, governance structure and operational infrastructure.

[Also: Overpayment, missing growth strategies are major mistakes in healthcare mergers, Deloitte says]

Most organizations embarking on this path are still operating in the coalition phase, he said. But the push toward a truly unified system, according to Sonderegger, is the ultimate key to fiscal survival, and over the next year, more and more organizations are going to realize the benefits.

As part of that trend, he expects that more systems will centralize their supply chain structure, which can eliminate duplication and waste. Along with the standardization of ordering and receiving processes, it's generally viewed as an expedient path toward systemness, and the margin improvements that come with it.

The creation of a consolidated service center is often a focal point of these efforts, wrote Sonderegger. The value of a CSC comes from the opportunity to automate processes, which can reduce picking and delivery errors. Because supply chain efficiency's potential to slash costs and eliminate operational variation, Sonderegger predicts the practice will spread in 2017.

[Also: Merger and acquisition trend in healthcare fueled by physician practices, Cascade says]

Another key strategy over the next year: pharmacy consolidation. To tighten up processes, a lot of health systems have consolidated their formulary review and drug evaluations by creating a system-level pharmacy committee, and several systems have centralized their supply chain processes for pharmaceutical contracting, often under a single administrative structure. Pharmacists' medication order reviews are increasingly being performed in a centralized manner, and Sonderegger predicts that will continue into 2017 and beyond.

These trends, he wrote, will likely continue regardless of how the incoming Trump administration impacts healthcare legislation -- and they will be the key to both short- and long-term success.

Twitter: @JELagasse

Show All Comments