PwC: Hospital mergers not yielding IT, clinical or operational efficiencies

Rather than streamlining operations such as clinical and IT that could create significant savings, many merged organizations continue running acquired hospitals as individual entities, the consultancy found.
By Susan Morse
01:17 PM

Mergers and acquisitions are often conducted with the aim of saving hospitals significant amounts of money by consolidating clinical and IT systems and processes to achieve economies of scale — but new research from PwC finds that such deals are rarely successful in that regard.

"Bigger companies are not yet able to convert their size into operating efficiencies," the authors wrote in the report.

Instead of having an integrated organization, PwC said, the merged health systems are often still run as individual hospitals. And that starts with top executives.

"A CEO of a hospital owns his or her own kingdom," said Anil Kaul, a PwC principal and one of the report authors. "They think of other hospitals as competitors, even if they're part of the same system."

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For the study, the authors analyzed 5,600 individual facilities and 525 health systems using data from Centers for Medicare and Medicaid Services. They didn't give information on specific systems, but focused on the statistics, they said.

PwC found that for individual facilities, larger hospitals do have a lower cost per encounter than smaller hospitals. When it comes to health systems with multiple facilities, however, the report found no relationship between size and cost.

Two hospitals within a 10-mile radius of each other, for instance, are often serving the same population, splitting the number of surgeries rather than pooling their resources, said report author and PwC director K.R. Prabha.

Also, when health systems look at saving money, they generally start with administration and the supply chain, they said. A centralized human resources, finance and IT department are obvious choices, Kaul said. As are revenue cycle and service line management when appropriate for specialties.

Yet the real savings could come from the clinical side, as that's where the majority of money is spent, Prabha said.

[Running list: Health IT mergers and acquisitions.]

"Eighty-five percent of the spend is on the clinical part of it," she said. "What we found was physicians that did more pre-procedure work got shorter stays in the hospital (after the procedure).”

The authors also said that patients should have a similar experience in every facility of a single health system. 

"When you look at the reason for the merger, it's less about reducing cost and more of a land grab for market share to get more negotiating leverage with the insurance company," Kaul said. "Some acquisitions are not about reducing costs, they're more about filling the portfolio."

Kaul, Prabha and Suman Katragadda, a PwC director, co-authored the report "Size should matter: Five ways to help healthcare systems realize the benefits of scale."

Twitter: @SusanJMorse
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