March 30, 2022
An Industry in Transition
In recent years, the healthcare industry has experienced an increased number of hospital mergers and acquisitions (M+A) – some due to growth initiatives, and others due to financial pressures. In a 2014 analysis of M+A trends, Deloitte forecasted rapid consolidation of health systems through 2024 due to regulatory, technology, and market dynamics. They estimated that after those 10 years, only 50% of health systems would remain and independent hospitals would no longer exist. By 2020, the company reevaluated its predictions and concluded that the top 10 health systems control 24% market share, and their revenue was growing at twice the rate of the rest of the market.
It’s no secret that the COVID-19 pandemic has further exasperated the financial pressures on health systems, so naturally, M+A activities remain at the forefront of many growth and/or survival strategies. M+A is great in theory and, as Deloitte found, those who pursued these initiatives pre-pandemic are now seeing topline revenue growth. But what about execution on the bottom line? How do health systems realize the benefits from mergers? How do they identify and achieve the cost drivers and operational improvements necessary to realize tangible return on investment?
Solutions for Merger + Acquisition Consolidation
The last thing healthcare supply chain teams need is more on their plates. Prodigo Solutions’ Data Insights helps transform supply chains by providing upfront decision-making analytics to inform operational strategies and cost-reduction initiatives. To complement the analysis, Prodigo also provides a spend management platform to implement necessary changes and drive standardization and compliance across each operating entity.
M+A integrations are complex. Supply chain activities include vendor consolidation and contract portfolio optimization, and they deliver standardization of the requisition workflow across purchasing channels. Often, these integrations include the migration of one or more ERP platforms and harmonization of the Item Master along with the clinical formulary. As a result, integration teams are challenged to identify and deliver quantifiable savings while also managing change for a large population of end users.
Prodigo provides supply chain analytics for healthcare M+A to drive ROI, direct smarter sourcing and make data-powered decisions. To do this, Prodigo analyzes historical contract and spend data from all operating units. Through its advanced business intelligence platform, Prodigo gives decision makers a consolidated view of spend activities along with actionable initiatives to drive value from the newly merged entity. This includes opportunities from contract sourcing, vendor and item standardization and price optimization.
Prodigo keeps the work off the supply chain teams’ plates so the organization can focus on delivering positive financial and patient care impact from the merged entities. In a recent presentation with Bon Secours Mercy Health (BSMH) and Prodigo at Prodigo’s 2021 Annual User Group Meeting, Timothy Heist, ERP System Director at BSMH, reflected that when Bon Secours and Mercy merged in 2018 to form BSMH, both organizations were fairly large IDNs with a total of 37 hospitals, with different ERP systems, and around 300,000 items in each Item Master. “We looked to Prodigo for a Virtual Item Master and industry standards to drive our data. When we created our Item Master model, we wanted to look at what occurs up front… because when it comes to supply, it’s the Item Master that owns it. That’s the source of truth and should drive everything related to items throughout our IDN,” said Heist.
Item/Vendor Master Consolidation
The objective of Prodigo’s Item Master and Vendor Master Consolidation is to understand current procurement practices of each organization to identify potential savings opportunities that could be achieved through the consolidation of supply chain activities across all operating units. Prodigo can support the main parent system as acquired locations are brought in that may be on different ERPs with unique vendor masters, contracts, and prices.
Item Master Consolidation harmonizes disparate Item Master data sets into a single view of the item formulary. Prodigo consolidates Item Masters records with spend activity to assess the best vendors and pricing for the combined system. Prodigo will identify different item types (managed, special requests, not purchased, duplicated, etc.) to identity areas of standardization. In addition, Prodigo will provide price standardization analysis across operating units to identify price variations with potential saving opportunities. This service includes staging customer data in Prodigo’s Data Warehouse, analysis of data (completeness and accuracy), deduplication (identification of matches and non-matches between Item Masters), and matching data by assigning normalized data lookups.
Manufacturer & Vendor Master Consolidation analysis identifies differences between the Item Masters of each system and consolidates manufacturers and vendors into a combined Vendor and Manufacturer master file. This includes standardization and normalization of Vendor and Manufacturer Names, assignment of industry identifiers. Also, this service removes duplicate Vendors and Manufacturers and flags potential unused and inaccurate Vendors and Manufacturers records.
Path to Value
The M+A Path to Value that Prodigo offers assesses spend from all locations to measure spend under management, contract compliance, contract utilization and supply chain standardization. Through Prodigo’s analysis of historical purchase activity, the assessment provides an overview of the organization’s total supply chain performance and spend profile to identify cost reduction opportunities and ROI. Recommendations are based on each health systems’ 12-month supply spend history along with a consolidated assessment of the organization’s overall spend profile and performance.
Prodigo has identified cost savings opportunities summarized across its four strategic Paths to Value:
- Supply Chain Standardization – Bringing 75% of all purchasing activity under management – control and visibility – through a single, compliant procurement workflow that gives control over all addressable purchasing activity for supplies, purchased services and capital.
- Impact: Over 50% reduction in Special Request spend; reducing price premiums on ad hoc purchases and loss of spend leverage.
- Contract Utilization – Drive 85% of all purchasing activity to approved, contracted sources to eliminate spend leaks.
- Impact: Over 24% increase in Contract Utilization; maximizing admin fees, rebates, discounts, and other contracted price incentives.
- Compliance – Enforce contract terms and pricing terms on 95% of all addressable purchasing activity.
- Impact: Over 50% reduction in price match exceptions; eliminating over payments and manual AP processes.
- Operational Improvements – Optimize master data management and requisition management to ensure accuracy and efficiency through the entire procurement lifecycle.
- Impact: 35% improvement in touchless supply chain transactions
Evolving Industry Dynamics
As supply chains face off against the financial and operational realities of inflationary costs, an extended pandemic recovery, and overall worker fatigue, we need to find innovative ways to deliver value. There are tremendous opportunities on the horizon to leverage our data assets to identify and operationalize supply chain M+A initiatives. The ideal solution for health systems engaged in M+A activities must go beyond simply identifying a ‘savings’ number. Supply chain leaders are winning the M+A challenge by employing best-in-class analytics to quantify their value opportunity, leveraging data enablement platforms to harmonize their disparate data assets, and adopting spend management tools to drive compliance from the front-end of the procurement cycle across a growing user base with an increasingly complex spend footprint. There are tangible cost benefits and improvements to patient care that will accrue from well executed integrations. Supply chain, as the second largest operational expense, plays a critical role delivering bottom-line value by controlling the point of service while improving the operational and clinical efficacy of every purchasing decision.
Contact the Prodigo Solutions team to learn more about how Prodigo’s is supporting healthcare mergers and acquisitions by connecting the supply chain ecosystem with accurate and actionable data.
About Prodigo Solutions
Prodigo Solutions is a healthcare technology company that improves providers’ financial control and reduces supply chain cost. Prodigo Solutions’ technology was purpose-built for healthcare by supply chain experts to deliver tangible results across a continuum of care. Customers who use our systems purchase more than $23 billion annually for the more than 700 hospitals they operate.