Health systems across the U.S. are looking at strategic acquisitions as a means to grow – and not just in size.
It's one of the more significant industry trends today – hospitals are consolidating, offering broader service reach and creating economies of scale to combat growing cost and regulatory pressures. In today's competitive market, ever-increasing standards of patient care, coupled with declining reimbursements and increasing costs of care, has created a need to grow efficiency exponentially. Consolidating through mergers and acquisitions, extending reach through strategic partnerships and alliances, community practices and larger non-hospital practices, are some of the ways that health systems are working to achieve these goals.
As the industry experiences this period of change, leaders must determine the benefits and risks of expanding, consolidating, and otherwise changing their business model. Quality care comes in many forms and varies based on a long list of factors. There is space for all sizes and shapes of offering quality treatment to patients in need. Above all, the patient should be the central focus from start to finish. It's imperative to keep a clear line of sight to improved patient outcomes through the clutter and ensure an unbroken continuum of care.
At the forefront of this trend is oncology. Approximately 34 percent of all drugs in development are oncology products and on average one-third of a hospital's total spend on invoice dollars is dedicated to oncology.1 As health systems prepare to integrate community oncology practices into the fold of their existing network, there are several key best practices that can be deployed to ensure success. Much of the healthcare industry today is ever-changing and demanding change without a clear line of sight into where the trends are heading. A multidisciplinary approach that prioritizes patient needs and includes the right partners can bring success when transitioning to a new model of organization.
Assessing the Need for a New Model
For many health systems, growth is one point on the map when looking to consolidate with other entities. The need to be competitive and provide the highest level of patient care is a mounting consideration for many health systems. In fact, the benefits to consolidating are important to note:
- Security with regard to employment and reimbursement
- Economies of scale
- Alleviate administrative burden so doctors can focus on patient care
- Resources available at a large institution
- Clinical trials/research support
- Efficiency across operations
- Class of trade opportunities
- Group purchasing contract accessibility
- Therapeutic product selection
Before the decision is made to pursue mergers, acquisitions or partnerships in oncology, leadership must consider the many benefits, risks and impact to the overall strategic direction of the organization with a thorough internal review. At the core of that decision should be the impact to patients and the ability to provide the highest quality of care. While there are many questions to ask to ensure readiness and strategic alignment, health systems should consider:
- Has the organization (buyer or target) been optimized to allow for growth? Will patients find value and better care from a new model?
- How will a merger/acquisition or partnership impact the mix of Medicare and Medicaid and commercial payers in the system?
- Is the Electronic Medical Records system (and other IT systems) prepared/optimized for oncology and able to bolt on to another system?
- Will a merger/acquisition significantly impact the number of purchases in the pharmacy?
Many health systems are surprised to know that acquiring a community oncology practice can double or even triple the number of purchases in the pharmacy. This has implications such as a changing trade class and the need for additional space and resources to manage inventory.
After careful consideration of this and other factors, if pursuing a new model is strategically sound, the real work begins.
Integrating at All Levels
Mergers and acquisitions are inherently high-risk activities, and once a decision has been made, conducting due diligence should be the first step in understanding how the organizations will function once integrated.
A readiness task force, created as early as possible, includes a diverse group of patient advocates, legal, information technology, human resources and brand management representatives to identify all key business areas that will be impacted by the transition. This includes non-oncology assets that may be impacted either by reallocated resources away from those assets or by benefiting from an overall increase in efficiency. The work group should develop a project plan that includes key milestones as well as an effective communication strategy to ensure all stakeholders are aware of the changes and the implications for their unique day-to-day roles and responsibilities. Specifically, the legal due diligence necessary to avoid antitrust issues and other problems.
Despite pressure to consolidate quickly to avoid interruptions in care, organizations that rush into signing a letter of intent before conducting all appropriate research may find it difficult to end the relationship. Neglecting due diligence at the outset often means key information goes unnoticed until its evolved from a manageable issue to a nonsalable condition.
One of the most frequently cited reasons for a failed M&A is cultural mismatch.There are operational and culture driven questions leaders from both sides of the table should be asking each individual department across each entity – from HR to the care teams – to ensure the success of merging not only the organizations but for the patients and their families.
To that end, communication will always be key. Consistent communication that respects both sides and appreciates their input is paramount. Leadership from the merging institutions should form common goals and commit to accepting constructive input from their perspective medical staffs. Clear communication can establish expectations and build strength and confidence across each entity's employees from the C-suite to the front lines.
Integrating local culture is imperative as even the most closely aligned entities can have day-to-day operational differences at a very micro level.
For example, while both methods offer patients high quality care, community practices often engage with patients at a much more personal level while a larger health system may be more process-oriented. Both cultures can derive value from the other and in that find new ways to treat patients with care and compassion; but the core agreement to seek cultural alignment is paramount.
Formulary decisions, pricing strategy, technology and systems to support and enable quality care, compliance and accreditation are all operational components that can be impacted by two organizations joining or aligning. A patient-centric approach to integrating large and small organizations can help make decisions more clear.
Benjamin Franklin may not have been thinking about oncology care when he said, "By failing to prepare, you are preparing to fail," but it is aptly put. From strategy to tactics, patients should come first and be the reason for approaching a new model. Next to patients are the people in front of the patients who have to understand and use the value of a new model in the care. If the approach makes sense for patients and employees, the final confirmation is alignment with the strategy and the ability to continue to grow in the new model.
Partnering for Success
A new model is not always the right decision and may be the right decision one year and not the next year. Having a set of partners that can help make financial, legal and cultural sense of a potential merger, acquisition or partnership strengthens the due diligence process.
Knowing who to turn to can be a challenge when evaluating partners across inventory management and pharmacy operations, payer communications, distribution, consulting services, patient support services, and group purchasing organizations. Again, patients must come first and while billing considerations may seem far away from patient care, the ability to connect the two by understanding how optimized billing means more resources for patient care is critical. Partners like AmerisourceBergen's Oncology Service Line, which combines the best expertise in many facets of oncology care and act much like an integrated health system by keeping all suppliers, consultants and distribution services under the umbrella of one company.
It's an exciting time for the oncology space – more products than ever are in the pipeline and as an industry, we have the potential to deliver on the promise of those products and provide patients with new options for treatment and care that improve quality of life expectations. Market changes will continue to shift, but health systems can act even as the ground is shifting beneath them with a partner that can offer a seamless experience and provide logical solutions to accommodate these changes.
Conclusion
As the healthcare industry continues to work toward integrated healthcare delivery and value-based outcomes, health systems are increasingly trending toward merging with community oncology practices to bring together their expertise on arguably one of the most prevalent disease states affecting the market today. These mergers and acquisitions are working to bring the large-scale operational successes of health systems with the local, personal touch offered by community oncology practices. These mergers are, by and large, a trend. Thus, it's important for all parties to clearly identify if it's the right choice. Independent community practices have a place to co-exist with larger health systems, and while there is pressure to consolidate, it should be approached thoughtfully.
Successful integration begins with pre-transaction diligences that allow the health system to look internally to ensure its own viability for the merger. Once the process begins, communication is essential to integrating cultures and ultimately reaching the financial successes often tied to such transactions. Companies like AmerisourceBergen have the unique position of seeing the issue holistically and providing the in-house resources to support health systems during these transitional periods.
Ultimately, the goal is to keep an unbroken continuum of care that supports the patient at every step and successfully integrated health systems to provide high quality care that delivers on the promise of the oncology pipeline.
References
1 - IMS data shows total spend by therapeutic category for the hospital class of trade in invoice dollars, it includes federal hospitals.
Becky is a Vice President at AmerisourceBergen Drug Corporation and manages the new service line which addresses the needs of both health systems and community practices.
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.