As the healthcare landscape sits under a cloud of uncertainty - and looks to remain so for the foreseeable future - more and more hospitals are joining forces, merging as margins tighten and as competitive leverage in insurance negotiations grows tighter. In the first six months alone of 2016, Kaufman Hall found an increase in mergers and acquisitions of 6.1% from the year before. Just this month, PinnacleHealth announced its acquisition of four hospitals and partnership with University of Pittsburgh Medical Center (UPMC).
There’s much advantage to be found in such moves, to be sure, but once they take place, there’s often a mad rush to eliminate excess cost and inefficiencies as soon as possible. Budget cuts and layoffs are often first on the list...and these changes don’t tend to have the best aftertastes. But what if we told you there were other hidden areas of cost savings that didn’t involve cutting anything?
In our experience, many hospitals tend to overlook an opportunity to create incremental and recurring savings from these deals. It's called initiating a medical equipment standardization strategy, and it can quite literally save your hospital millions of dollars during a merger or acquisition.
Fleet standardization tends to be the most overlooked activity in a hospital merger or acquisition. This is partially because, while it offers significant savings opportunities, it is also incredibly difficult. The accurate information you need to make smart decisions about inventory and service contracts is hard to find, as is figuring out the value and what to do with all the underutilized equipment that turns up in these deals.
If your organization is undergoing a merger or acquisition, here are 3 great tips to help you uncover those savings:
1. Leverage Spot Market Pricing to Supplement Your Fleet – Most health systems choose to standardize certain types of equipment with one manufacturer to streamline costs and make it easy for staff. Look to take advantage of “spot” market prices and special discounts or promotions; a well-timed supplemental purchase of equipment can save as much as 20% compared to what you would otherwise have paid. Before you buy, make sure to benchmark any quotes you receive.
2. Identify and Recover Cash Value From Underutilized Assets – With many hospital mergers or acquisitions, there can be duplicate or overlapping services that can often result in a surplus of clinical assets. Many of these assets may be relatively new and in good condition, but don’t let the temptation of putting them aside for a “rainy day” win you over. The best time to recover maximum value for clinical assets is at the time when you stop using them! A systematic utilization review can enable you to identify the potential market value for resale, trade-in or continued use.
3. Stretch Capital Budgets By Purchasing Pre-owned Equipment – There is rarely enough capital in most hospital budgets to meet all the needs and “wish list” requests from physicians and staff. Mergers often present great opportunities to introduce new savings strategies and if your hospital doesn’t currently consider pre-owned equipment as a way to save, maybe now is the time. You can often find quality, pre-owned equipment at up to 40% less than the cost of new without impacting reimbursement. An effective clinical engineering team or third party service provider can frequently provide reliable services for many different pre-owned systems and help keep equipment running reliably for many years.
We will continue to use this blog as a venue to share other insights and savings ideas related to the medical equipment lifecycle. As always, please don’t hesitate to share your own thoughts or suggest other topics of discussion. It would be great to hear from you!