Thought Leadership in Action

New research from the American Hospital Association indicates that hospital mergers result in “significant” cost savings and improvements in quality through increased efficiencies. The research found that annual operating expenses dropped 2.5 percent, a savings of $5.8 million, at acquired hospitals. These savings and efficiencies come from eliminating redundancies across the board, but in some cases redundancies are overlooked or, worse, kept on hand “just in case,” resulting in higher costs in the long run.

So what should go? “The answer can range from personnel to optimization of service offerings when considering what should be cut or considered for change,” says Hogi Kurniawan, senior audit manager of Haskell & White, a CPA firm based in Orange County, California. “In terms of who should decide, this should be done at the upper-management level, an executive team made up of personnel from various departments including finance/accounting, IT, operations, HR and legal.”

Here’s what to watch for when hospitals join forces.

Audit Your Infrastructure

Early in the process, leaders should perform an inventory audit of all infrastructure and resources, says Nick Merkin, CEO of Compliagent, a health care compliance consulting firm based in Los Angeles. This is the time to spot redundancies all across the board, including HR, IT and vendor supplies and services. “You also need to look at how you’re going to integrate key areas, such as legal and compliance,” he says.

Equipment consolidation or liquidation can be intriguing, especially for high-value machinery, and Kurniawan says there are specific accounting procedures being implemented that would affect how health care CFOs recognize revenue for this equipment during and after a merger or acquisition. In addition, some real estate assets may be sellable, reducing the need for service contracts such as maintenance on the IT infrastructure of those buildings, Kurniawan says.

Identify Staff Redundancies

Layoffs are often seen as a first step to reduce redundancies, but Katharine Halpin, founder of The Halpin Cos., a Phoenix-based business management consulting firm, says that approach can hurt a new organization’s culture. “The culture is the collective attitude, mindset, judgments and beliefs of the employees. Our experience indicates that it takes almost a decade for the culture of an organization, especially a health care organization, to recover and rebuild trust,” she says.

With that in mind, you can still look for areas to add automation and let workers focus on core tasks, says Jason Wood, founding partner of Colloquia Partners, a business consulting firm based in New Hope, Pennsylvania. He also encourages organizations to review longstanding processes to find efficiencies and go beyond “the way we’ve always done it.” “Involve your people. Line-level employees know where there are improvements to be made; empower them to redesign workflow and processes,” he says.

Cut Back on Duplicated Software Platforms

Conduct an audit of ancillary systems within the first 90 to 120 days, Wood says. “There are significant potential cost savings to be had in evaluating and renegotiating dues, subscriptions, maintenance and support contracts, and in aligning staff who are supporting duplicate or parallel systems across the combining organizations,” he says. “There is significant value in integrating systems and processes as part of the cultural integration as well."

These systems may include payroll, HR, EHR or production of consumer health content, duplication of which would simply run up costs or cause confusion. Again, check in with line-level employees who use the systems to determine which may provide the best value.