Mergers and acquisitions (M&A) within the healthcare sector have increased in recent years due to financial needs and a desire for expanded services. This trend brings challenges and opportunities for healthcare supply chain management. For medical practice administrators, owners, and IT managers in the United States, understanding the impact of M&A on supply chains is vital for effective operations and patient care.
The COVID-19 pandemic revealed weaknesses in healthcare supply chains across the U.S. Hospitals and healthcare systems faced significant shortages of essential medical supplies, such as personal protective equipment (PPE), pharmaceuticals, and treatment supplies. The aftermath of the pandemic highlighted supply chain issues, particularly during the integration of newly acquired entities. According to the American Hospital Association (AHA), challenges in the healthcare supply chain have continued, with rising labor costs and inflation impacting operational efficiency.
Effective supply chain management (SCM) is essential for timely delivery of crucial products, which is necessary for patient care and safety. Proper SCM can reduce medical errors related to incorrect or expired medications, thus improving patient outcomes and lowering healthcare costs. However, the difficulties arising from M&A can complicate SCM efforts, requiring focused strategies for successful integration.
As M&A activity returns to pre-pandemic levels, merging different healthcare systems presents challenges. Leaders in supply chain management face greater responsibilities, especially in reconciling various supply chain systems and practices. The National Health Service has noted that poorly integrated supply chains can result in inefficiencies, higher costs, and diminished quality of care.
Standardizing data and contract terms is a major concern during the M&A process. Experts like Tom Harvieux from BJC HealthCare stress that successful supply chain integration after mergers depends on implementing standardized protocols. This standardization allows healthcare systems to utilize both clinical and operational benefits effectively, optimizing resource use.
During M&A processes, supply chain leaders frequently encounter key concerns: staffing changes, product availability, technology integration, and the complexity of managing diverse systems. It is crucial for healthcare organizations to align their supply chain goals with broader organizational objectives to address the needs that arise from these integrations. Engaging in collaboration across functions can support better alignment in decision-making processes and improve operational efficiency.
Effectively combining different supply chain practices is important for addressing many challenges that occur during M&A. During integration, forming cross-functional teams—composed of clinical staff, supply chain experts, and administrative leaders—can promote collaborative efforts toward finding solutions.
Healthcare organizations may have unique supply chain practices tailored to their operational needs. Understanding the specific processes of merged entities can aid in streamlining integration efforts. Evaluating current staff capabilities and identifying gaps is crucial. Tracy Cleveland from Munson Healthcare highlights staffing, product availability, proximity, and technology as key factors to consider during a merger. By focusing on these areas, organizations can enhance their supply chains.
A good strategy for tackling product availability issues involves reconciling the item master formulary, which is the official list of approved medical products. This reconciliation helps eliminate duplicate processes, reduce product variation, and improve overall supply chain performance. Creating a centralized repository for supply chain data can also enhance transparency and access, fostering efficiency across merged entities.
One pressing challenge in healthcare supply chains after M&A is managing data quality. Different systems often lead to inconsistencies and a lack of visibility, hindering effective decision-making. This issue worsens as reliance on data-driven analysis grows for predicting supply chain disruptions. Approximately 18% of transactions across the GHX network show price exceptions, indicating the costly nature of unresolved discrepancies. Improving data quality and visibility with trading partners is essential for enhancing supply chain performance.
As organizations merge, leaders must prioritize data standardization initiatives that align with existing systems. Implementing a digital transformation strategy that includes adopting cloud-based supply chain management (SCM) can significantly improve efficiency. A GHX survey suggests that nearly 70% of hospitals and health systems are likely to adopt cloud-based SCM by 2026, enhancing their ability to manage inventory digitally.
Integrating Electronic Resource Planning (ERP) systems can further streamline operations. Ensuring that all data and processes are reconciled effectively allows healthcare organizations to transform their diverse systems into a cohesive and efficient operation. This transition also helps mitigate risks associated with cyber threats, which are rising in the healthcare industry, and adds pressure on organizations to improve security measures.
Investing in automation technologies is another key strategy for addressing operational inefficiencies during M&A. Automating low-value tasks allows supply chain leaders to focus more on strategic initiatives that enhance efficiency. The healthcare supply chain workforce currently faces challenges, including a wave of retirements, making it crucial for organizations to adopt automation to cover the skills gap.
AI and machine learning (ML) have considerable potential to improve inventory management and predict supply chain disruptions. Automated systems can collect and analyze large amounts of data, enabling healthcare organizations to gain understandings of utilization trends, which aids in proactive decision-making regarding inventory and procurement. AI supports a responsive enterprise that can adjust to changes in supply and demand, ultimately aligning with patient care objectives.
For example, intelligent inventory management analytics can help supply chain leaders navigate genuine supply chain disruptions by predicting trends before they lead to shortages. These AI-driven solutions can also automate administrative tasks related to invoicing and contract management, providing deeper understanding of the complexities faced during integrations.
As non-acute care settings grow, supply chains must adapt to new operational requirements presented by these models. Automation can play an important role in this transition by ensuring timely availability of supplies critical for care outside traditional hospital environments.
The financial effects of the pandemic have led healthcare organizations to reassess their supply chain strategies. Decreased patient volumes and rising expenses necessitate a strong focus on operational efficiency. McKinsey & Company indicates that effective supply chain management can reduce supply spending by up to 10%, offering a potential avenue for organizations to regain financial stability.
Healthcare supply chain costs are expected to rise, with a projected increase of 2.9% from January to December 2024. This increase further emphasizes the need for developing cost-saving strategies. Engaging in group purchasing agreements and fostering competition among suppliers can help organizations negotiate favorable arrangements while managing costs.
Additionally, the push for health equity—a significant concern in U.S. healthcare—adds complexity. Organizations need to manage supply chain resources to cut costs tied to health disparities, which are expected to increase from $320 billion annually to $1 trillion by 2040 if not addressed. By leveraging actionable data, organizations can prioritize procurement from local suppliers and evaluate outcomes to better serve underserved communities.
Given the complexities in M&A and their effects on supply chain management, targeted strategies can help organizations improve efficiency and operation:
By recognizing the effects of mergers and acquisitions on supply chain management complexity and efficiency, healthcare organizations can formulate strategies that navigate challenges and take advantage of new opportunities. Addressing these issues comprehensively contributes to sustainable practices while prioritizing patient care in a changing healthcare environment.
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