The American health care model has evolved with changes that have challenged health care systems. More regulation and more “hoops” have meant more costs, while in many cases, setting a higher bar for patient care.
In order to survive and prosper in this environment, many health care systems have considered merging with former competitors or buying out other hospitals or health care systems. While these mergers and acquisitions (M&A) can help solve some financial challenges, they can also create new challenges for employees and departments with new corporate cultures, new rules and budgets, possible layoffs and personnel changes.
The year 2016 was the third best on record for M&A deals with 4,951 mergers. After the financial crisis, many companies began to hold onto cash. Large companies, listed on the Standard and Poor’s 500 Index, held more than $1.5 trillion as of the end of the third quarter of 2016.
For the M&A activity to continue, the cost of borrowing money has to remain fairly low. This will be determined by how quickly the Federal Reserve raises interest rates. The debt financing rate is connected to the Federal Reserve’s Federal Funds short-term rate.
Another factor is the current administration. A pro-growth, pro-business agenda will help with successful M&A activity, just as it will help the equity markets and steady growth in the gross domestic product (GDP). This is an environment ripe for M&A.
For companies looking for buyers, it is like preparing a house for sale. Curb appeal must be maximized and in the M&A game, companies must make their valuations look attractive, operate efficiently, have top-notch employees and diversify revenues.
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Stretching Every Dollar
In health care, the impetus for either mergers or acquisitions comes out of the need to improve efficiency or lower costs or both. One hurdle is to get the blessings of the Federal Trade Commission (FTC), which needs to review any antitrust concerns. These concerns can impact consumers as well, just as a consolidated airline industry has led to more fees.
In 2014, there were 95 hospital mergers, which was considered a record number at the time.
A Medicare Payment Advisory Commission (MedPAC) blog post stated that hospitals “can cut costs when they are under competitive and fiscal pressures.” Conversely, concerns about the impact on patients caused Connecticut Governor Dannel Malloy to place a moratorium on hospital and health care system mergers in 2016.
For many health networks and individual hospitals, dwindling reimbursement rates from inadequate federal payments or commercial payers is one factor that drives the need to scale up. Mergers provide health systems with economies of scale that allow them to leverage increased resources and buying power.
For 2018, there is talk that Ascension Health and Providence St. Joseph could merge, according to Fortune Magazine. If true, the resulting health care hospital network would be the largest in the country.
Mergers that have surpassed the talking stage include Advocate Health Care’s planned merger with Aurora Health Care and Dignity Health and Catholic Health Initiatives (CHI).
A 2016 joint press release from CHI and Dignity Health said: “The organizations complement one another in many other important ways. CHI brings a diverse geographic footprint with proven clinical service lines and home-health capabilities, as well as successful partnerships in research and education. Dignity Health has a proven operating model that has successfully scaled enterprise-wide initiatives to ensure consistent practices across the system, and is well known for its work with innovative, diversified care-delivery partnerships.”
Health Care Squeezed
Health care systems are being forced to consider mergers and acquisitions in order to survive and prosper in a marketplace that has been transformed through changes in the health care model. Many hospitals depend on reimbursements from CMS for Medicare and Medicaid patients. In 2013, Medicare penalized nearly 1,500 hospitals under their quality incentive program. Hospital stays are shrinking also. Some hospitals are losing market share. Many hospitals are joining together to become systems or networks in order to survive.
For hospitals in rural areas, there are fewer large employers who provide employer-sponsored health insurance, so there are larger populations who depend on Medicaid and Medicare. Some of these rural hospitals are even termed “Medicare-dependent hospitals” (MDHs) because such a large portion of their patients depend on Medicare. If one of these facilities closes, it is a blow to the health care needs of the local population. A merger or acquisition may be the only hope.
In places that have had cuts to Medicaid, the public hospitals have had to step in and provide more care without reimbursement. Also, under the Affordable Care Act, health care systems must expand their service coverage to a larger geographic area.
Hospitals are also losing some sources of profit as in the example of CMS’s consideration of allowing knee replacement surgeries to be performed in outpatient settings with reimbursement. Hip replacement surgeries could follow. Traditionally, these patients have been operated on in an inpatient surgical unit in a hospital and then spend several days in the hospital. A shift to outpatient surgery centers could account for more than $7 billion in lost reimbursements for hospitals.
More than a third of all M&A deals in the past year have been in the long-term care category. Managed care accounts for about a quarter of all deals.
“Regulatory pressures are causing hospitals to improve the care they provide to patients and not keep patients in the hospitals unless there is a medical need (i.e. ED, surgery or ICU stay). CMS reimbursements to hospitals are shrinking. All this change is causing loss of market share, forcing health care organizations to expand their market share to ensure patient retention and profit margins are not reduced,” says Salim Kai, MSPSL, CBET, manager of biomedical engineering at Kettering Health Network in Dayton, Ohio.
“The HTM workforce is being affected by this rapid change since we manage technology and technology follows the patient journey from any point of entry into the health care ecosystem (emergency department, surgery, labor and delivery, routine outpatient visits),” he adds.
Impact on HTM Department?
For those in the HTM department, the prospect of being a part of a merger or acquisition includes many factors; both good and bad. In some cases, it can mean additional resources or personnel that are a welcome addition. It can mean upgraded technology or a different CMMS system that are an improvement.
On the flip side, it may mean that some middle managers are eliminated. It may require adopting a culture that seems intrusive or foreign. If the entity purchased was used to newer technology, and the larger purchaser has more antiquated technology, it may mean taking a step back in time.
As is the case in any work environment, when there is a substantial event, the mood is one of apprehension; what changes might be on the horizon? Some of this is justified and some is needless speculation.
“Within my career I have been involved in three mergers/acquisitions, one in the late ’90s; we combined three local hospitals to form a health system. In 2015 the health system decided to actively search for a larger partner to merge with to get ahead of the financial impact and pick our own partner while our performance was strong. In October of 2016, we merged with UPMC. Then in October of 2017, we added two more local hospitals to our system,” says Jim Fedele, CBET, director of biomedical engineering for Susquehanna Health at the Williamsport Regional Medical Center in Williamsport, Pennsylvania.
“So I am living this on a daily basis and the future looks like more of the same,” he adds.
While there have been many biomeds with good experiences after an M&A has occurred, some others describe something more unsettling. This Ohio biomed, who preferred to remain anonymous, had a negative experience.
“What happened to me was not pleasant. The large multi-state hospital group that I was working for sold off all of the facilities it had in this state. The new group came in and was very nice at the start. They brought in their own CMMS software so the first thing they wanted to do was convert our data into their system. My supervisor and I helped them complete this big project. All was good. Next they brought in one of their technicians. This was good because we needed more help. Another good thing. Next they told us we were going to share some resources with another one of their group hospitals. Another good thing,” he states.
“Next, they hired us another new technician. Still good. Soon after, when we had taught these new technicians all about our operation, they let my supervisor go and made their technician, that they had brought to the operation, the one in charge. Right about here, I knew my job was not secure, and it was not long after that I was let go,” he adds.
Fedele, on the other hand, says that in his case, there were no big changes.
“The impact will be who is signing your check, the fundamentals of the job won’t change but who is paying you will most likely change. For me I was paid by Aramark to manage the program and when the latest merger happened they put in their program so now I get paid by them. Of course we are learning how to use a new CMMS system and how to order parts and items like that, but we are still performing PMs and fixing broken equipment and taking care of customers,” he says.
“Also, it is going to affect your relationships with salespeople; if your hospital is being purchased, you most likely will be using their preferred vendors and they may not be the ones you have been using. Even equipment manufacturers, that you have used in the past, could be changed as new equipment is purchased,” Fedele adds.
How does HTM address this probability, prepare for it, or respond to the C-suite?
“My advice is the following,” Fedele says. “Make sure your database is clean, accurate and always up to date, when you merge with someone else your data will be merged with their system and you can save a lot of time and embarrassment by ensuring you have a solid database.”
“Be sure you are an asset to your organization and are exceeding customer expectations, because if you aren’t, a merger may be a good time you get cut loose,” he adds.
As a final note on the topic, Fedele gives probably the best advice.
“Most importantly embrace the change, help your customers navigate new equipment vendors and assist them anyway you can,” he says.
View from the Acquirer
Within the acquisition component of M&As, there are two parties; the entity being acquired and the entity that is making the purchase. While there are often changes that the HTM department, which is part of the entity being acquired experience, there are also changes experienced by those working for the purchaser.
“Our system has recently brought in several new hospitals and our biomed department has taken ownership of the local hospital department and employees. So I am coming from the occupying facilities point of view,” says Steven Kelley, manager of diagnostic imaging repair, biomedical engineering at Piedmont Healthcare in Atlanta.
“We have standard operating procedures and a system wide database. We merge the local biomed team into this system ASAP. This allows us to have access to their data and helps with management. We work closely with the local hospital, understanding that each facility has different needs. However, we need to operate on a standard set of rules across our system,” he says.
“My concern is to make sure the local hospital biomeds are treated in a way to help them to realize that we are there to back them up, provide training and tools that are needed and to make their job better. That we are open to listen to their needs and the hospital’s needs and make adjustments to our standards to meet those needs,” Kelley adds.
Kelley says that in his experience, he believes that they were able to provide a positive impact.
“Elevating the biomed department in house and providing guidance and support to the team that was not there before. Becoming part of a much larger system gives the biomed group greater impact in dealing with vendors and lowering costs,” he says.
Kelley says that in order for the HTM contingent to have the best experience resulting from a merger or acquisition, the biomeds must think more like business people.
“For the group that is being taken over, the big concern is that the C-suite makes decisions that affect biomed without their input. If they are contracting biomed out to a vendor, without the input from the local biomed leadership, then things could be missed that would actually cost the facility more,” he says.
“I feel that there needs to be more business-minded leadership in the biomed ranks. I am not talking about an MBA with no biomed experience running biomed. I am suggesting more biomeds learn the business side of things and bring that to the department as leaders. Strong business-minded leadership in a biomed department cannot be beat. And when that is missing, it is more probable that the department will be outsourced to a vendor,” Kelley says.
“So, to be prepared for a merger, you should be actively involved with your C-suite making them aware of your concerns. Offering to be part of the transition team and showing concern for the outcome to the hospital, not just to yourself,” he adds.
There are some inevitabilities in health care today. One is that mergers and acquisitions make good business sense and health care is a business. If you have not experienced one of these events yet, there is a good chance you will. Be prepared, make the best of it and remember that a fiscally well-off employer is a good thing.
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