Skip to main content

3 Reasons to Prioritize Capital Equipment Planning During Healthcare System Mergers


From 1998 to 2015, over 1,400 hospital mergers have transpired in the U.S. They’ve been increasing nearly every year, especially since the ACA was enacted in 2010. Healthcare systems are consolidating for both financial and strategic reasons; these challenging and complex transactions bring growth opportunities as well as risks.

An article found on CIO called: “What is merger and acquisition due diligence?”, written on June 9th, 2015 by Dewey E. Ray, explains the 4 areas of due diligence to focus on: 
  • “Strategic Position 
  •   Financial Data 
  •   Operational Assets 
  •   Legal Matters” 
Operational assets are a major aspect of M&A planning and implementation. Effectively dealing with the capital equipment involved in a transaction takes consideration, strategy, and organizational software tools. In this regard, let’s discuss 3 reasons to prioritize capital equipment planning during healthcare system mergers.

Definition of Capital Equipment

Equipment that costs over $1,000 or $5,000 (depending on the size of the organization) and isn’t consumable within a year is generally classified as capital equipment. This doesn’t include supplies or the building structure itself. From a $1,200 defibrillator to a $1 million MRI machine, capital equipment is the expensive equipment used to serve patients.


Great Opportunity to Reduce Costs


“… (1) purchasing redundant, expensive medical equipment and generating excess demand…” is one of the 3 ways: “Hospitals have contributed to the cost hike in recent decades…”, according to a Forbes’ article called: “Why Major Hospitals Are Losing Money By The Millions”, written on November 7th, 2017 by Robert Pearl, M.D.

Spending on durable and non-durable medical equipment amounted to 4% (2% each) of the $3 trillion in revenue for the healthcare industry in 2014 (data from CMS). Basically, purchasing capital equipment is a multi-billion dollar expenditure for healthcare organizations as a whole.

The exact total value of the capital equipment involved in merger transactions will vary depending on the size and type of healthcare organizations involved, yet is always a significant amount. The large amounts of money involved in mergers and the physical nature of most capital equipment creates opportunities for managers to save money and increase workflow efficiencies.

An article found on U.S. News called: “Hospitals Waste Billions of Dollars in Medical Supplies”, written on March 9th, 2017 by Anzish Mirza, explains:

“Medical supplies that are in perfect, usable condition are often put out in the trash by healthcare facilities, ProPublica reported. And it adds up to an estimated $765 billion a year, according to a 2012 report by the National Academy of Medicine.”

The article includes capital equipment in the definition of supplies, as it goes on to explain the type of waste involved includes ultrasound machines costing $25,000.

Essentially, capital equipment planning during M&A processes can be used to discover and resolve waste issues, as well as to assess, consolidate, streamline, and organize capital equipment assets. After a thorough audit and due diligence are accomplished, healthcare systems can pinpoint opportune areas and implement profitable resolutions.

Streamlines Operational Workflows


Effective capital equipment planning has the potential to streamline operational workflows when mergers are completed; the capital equipment and infrastructure involved in delivering care to patients largely determines the efficiency and effectiveness of that healthcare organization’s services.

Replacing outdated equipment, phasing out equipment, selling used equipment, and consolidating equipment from mergers, are all processes that can be optimized for profitable capital equipment ownership and use. Essentially, organizations want to maximize the potential of existing capital equipment while being resourceful and strategic with upgrades, integrations, and liquidations.

Capital equipment planning is only one of the four areas of focus for due diligence, yet holds the key for healthcare systems to streamline operational workflows. The equipment itself is what powers and facilitates everyday workflows; when this equipment is optimized for streamlined efficiency, organizations will be empowered and serve their patients more effectively.

Gives Organizations a Chance to Assess Strategic Capabilities

Capital equipment planning gives healthcare organizations a chance to assess their strategic capabilities when it comes to the expensive equipment involved in the delivery of care. Mergers shake up healthcare organizations and challenge them to change and integrate with new healthcare systems; this period of change gives planners an excellent opportunity to assess their strategic capabilities.

The combined capital equipment of all healthcare systems being merged in a transaction represents the expanded extent of the consolidated system’s capital equipment capabilities. Essentially, the capital equipment acquired in a merger will expand operational and strategic capabilities; capital equipment planning can assess this expansion to develop strategic goals with marketing, operations, budgeting, etc.

The reasons mergers happen in the first place are strategic, whether to resolve financial issues or form strategic partnerships to increase capabilities and efficiencies. By prioritizing capital equipment planning during the merger process, healthcare systems can realize their strategic goals and effectively utilize acquired capital equipment resources.

Assessing strategic capabilities concerning acquired capital equipment from mergers is important, especially considering the transactions are of such high value, as an article found on Healthcare Finance called: “Hospital mergers up 13%, says Kaufman Hall”, written on January 9th, 2018 by Jeff Lagasse, explains:

“There were 115 hospital and health system mergers in 2017, enough for a 13 percent increase, according to a new report from consulting firm Kaufman Hall and Associates.

Of those transactions, 11 involved organizations with at least $1 billion in annual revenue.”

He then explains the reasons for the increase:

“One of the biggest drivers of this increased M&A activity is that hospitals and health systems are trying to compete with national insurers and outpatient medical care providers by achieving scale and competing for market share.”

As for implementing strategy into the M&A process, an article on H&HN called: “A Business Plan of Operational Efficiency for Merging Health Systems”, written on March 10th, 2015 by Brandon Klar, explains:

“A health system BPOE [Business Plan of Operational Efficiency] is a comprehensive, action-oriented system integration plan. It is designed by and for organizations that are forming a single corporate structure strategically and operationally. Simply defined, a BPOE is a road map for achieving the full benefits of an affiliation — operational efficiencies, cost savings and enhanced clinical value.”

Prioritizing capital equipment planning will help healthcare systems strategically develop and understand their holistic objectives for the completed merger transaction outcome.

Conclusion


There are many complexities involved in healthcare system mergers, including dealing with capital equipment efficiently and effectively. By prioritizing capital equipment planning, health organizations can reduce costs, streamline workflows, and enhance their strategic capabilities.

In order to reach these objectives, healthcare organizations can utilize cloud-based capital equipment planning software to develop, organize, and implement strategic merger roadmaps; these innovative management solutions are key for streamlining and organizing the complexities involved with healthcare system mergers.

Comments

Popular posts from this blog

Rocky (1976) Movie Review

Duncan Chen/ Flickr One of the best movies of all time. The Genuine Approach It’s hard to believe this iconic American movie was created 50 years ago in 1976, three years before I was even born. It is also hard to believe how well the movie has stood the test of time as one of the best American movies ever made. The entire  Rocky  series of movies, including 6 movies directly about Rocky Balboa (not counting the two  Creed  movies which have him as a secondary character), are amazing movies that inspire the viewer and represent the American dream of working our way up from the bottom to become a success. Although the subsequent  Rocky  movies are great in their own right, none of them compare to the original  Rocky  movie. What makes the original  Rocky  movie one of the best of all time isn’t one thing, rather it is a culmination of a myriad of factors that combined at the right time to give us a genuine, humble, and ever-relatable stor...

The Following Leaders on Medium

I remember one distinct moment during a career development course at a community college I attended 21 years ago when the professor asked us to stand up and do an exercise.  She asked the class to separate themselves into two groups; those who thought of themselves as leaders on one side of the classroom and those who thought of themselves as followers on the other.  This question came without warning at the beginning of the class, so we didn’t have time to think it through. The result was probably more sincere because of this suddenness.  For some context, the class consisted of about 30 students, mostly young adults under 21 YOA; I was about 21 years old. An interesting thing happened.  An Important Life Lesson in Social Perception The vast majority of the class went to the leader side of the class and only two of us went to the follower side. I was one of the followers along with another young man. How awkward; then the professor focused on us followers and ask...

Opinion: Most communities in Oregon and the US are Republican, yet Democrats are in charge

2022 Oregon Governor Election Photo  Assuming election results are valid in Oregon, which does take a lot of faith these days after the questions about the 2020 US Presidential election arose, Democrat Tina Kotek won the Governor’s race in 2022 by a slim margin over Republican Christine Drazan. The interesting aspect of this win is how many of Oregon’s 36 counties voted Republican vs. Democrat. Looking at the political map, almost the entire state is red with only a few small counties in the northwest having the blue color. Specifically, there were 7 counties that voted Democrat and 29 that voted Republican. The difference is the 7 counties voting blue are the most populous counties, also the counties with the most residents coming from other states – much like Tina Kotek herself, a transplant from Pennsylvania . Tina only won the campaign to be Oregon’s 39th Governor by 66,727 votes over Christine Drazan. Said in another way, the Democrats pulled off another close election with m...

An Ode to Grandpa Lee

An old-time pioneer amid modern vanity and "progress." The man stood tall in the wind with the sun beating down on his flat-brim cowboy hat. He was a working man, focused on his pioneer family in the western country they called home. Building and designing structures high and wide, the man skipped across wooden beams high in the air, under shadows cast only by moving clouds; wide open spaces watched the scene as death-defying feats were carried out in relative obscurity, as just another day of work. The man was an old-timer with relatively few years to boast, a before his time pioneer with an adventurous and loving wife plotting business in sagebrush lands far beyond the hyped city life bustling with seemingly meaningless activities. His skin was as leather, scorched in the sun and beaten with high winds containing drifting sand mixed with alkaline dirt. The dry mountain air in the high desert cleansed his heart with comfortable respite from the high temps and harsh weather e...