In recent years, healthcare consolidation has become more common. Many hospitals and healthcare systems are merging or buying others to form larger organizations. For example, in 2021, there were 314 hospital mergers and acquisitions in the U.S., according to Definitive Healthcare data. This reduced the number of health systems to 1,093 from over 8,000 active hospitals across the country.
A notable trend in this consolidation is cross-market mergers. These happen when hospitals or systems in different geographic areas join together. Between 2010 and 2019, about 55% of hospital mergers involved cross-market activity, affecting roughly 1,500 hospitals.
Recent examples include Kaiser Permanente’s planned merger with Geisinger and Christus Health’s purchase of independent regional hospitals far away. These mergers create large systems that work across multiple states and markets and manage many resources and patients.
Supply chain costs make up a large part of hospital operating expenses. On average, they account for about 30% of total hospital costs. In 2020, the average hospital spent around $30 million on supplies. These costs include clinical and non-clinical supplies, medicines, and equipment needed for patient care.
One important category causing high supply costs is physician preference items (PPIs). These are devices and supplies chosen by doctors based on their needs or specialties. PPIs can be between 40% and 60% of total hospital supply expenses. Because of this, managing these costs is important. As hospitals merge, negotiating better prices and standardizing supplies is key to lowering expenses.
You might think that healthcare consolidation would always reduce supply costs. Larger systems can buy more at once and get better deals from vendors. Combining orders from many hospitals helps avoid duplication and makes buying easier.
But the situation is more complicated. Even with consolidation, hospital supply costs have gone up in recent years. The American Hospital Association said that supply costs rose by almost 16% from 2019 to 2021. When COVID-19 started, hospitals spent an extra $2.4 billion on supplies more than expected.
Several things cause costs to rise. Problems in supply chains, higher demand for protective gear, and inflation in medical products increase prices. Large health systems may save money inside their network, but more use and rising prices can cancel out these savings. Also, hospitals have different contracts and preferences, so coordinating supply chains needs good teamwork and technology to see real savings.
Besides supply costs, consolidation also affects how hospitals perform financially. Bigger hospital systems can improve operational efficiency by sharing clinical practices and administrative tasks. Small or rural hospitals that join big networks often get better access to funding and management help. This can stabilize their finances.
Cross-market mergers help groups take part in value-based payment programs. These programs pay based on quality and efficiency instead of how many services are done. Shared supply chains and centralized control can improve profit margins by reducing waste and duplication.
However, price increases tied to mergers are a concern. Studies show cross-market mergers caused healthcare prices to rise between 6% and 17%, even when hospitals are in different areas. This happens because bigger merged systems have more power to negotiate with insurers for higher payments. These price raises may affect patient costs and insurance premiums.
One important supply chain strategy is to reduce the number of hospital supply vendors. Working with fewer suppliers makes buying simpler and might lower costs and increase efficiency.
Emily Carter, a healthcare supply chain analyst, says it is important to measure the effects of vendor consolidation by carefully watching expenses before and after the change. This involves checking purchase orders, invoices, and budgets to see if savings or extra costs happen. Hospitals that review prices carefully can make better contracts and get fair market prices.
Maintaining quality is also important after consolidation. Checking product reliability, delivery speed, and customer satisfaction helps make sure cost cuts do not harm patient care. Using key performance indicators (KPIs), like cost savings percentage and inventory turnover rate, supports ongoing monitoring and changes.
Feedback from supply chain managers, clinical staff, and vendors helps understand real effects and improves communication. This makes transitions smoother and helps create agreement on buying plans.
More healthcare systems use AI (artificial intelligence) and workflow automation to improve efficiency. Simbo AI is a company that focuses on front-office phone automation and answering services using AI. This helps hospital management and administrative work.
Using AI in hospital supply chains can improve demand forecasting by studying past data and trends. This leads to better inventory management. AI tools help procurement managers see spending patterns in departments and find places to save money. For example, AI can spot too much use of physician preference items and suggest choices that keep care quality.
AI automation in the front office lowers administrative work, letting medical staff focus more on patients. Automated calling systems handle appointment scheduling, patient questions, and billing issues. This cuts staffing costs and errors while giving patients faster responses.
AI tools also help manage vendor communications, streamline approvals, and handle compliance documents. These steps are important to avoid supply chain problems. AI can alert staff when inventory is low or prices change, allowing quick action.
About 97% of healthcare executives say analytics and technology help lower hospital costs, and 87% expect supply chain tech to improve profit margins by at least 1%. Yet, 64% still do not fully use supply chain management systems. This shows many hospitals can gain from using more technology.
It is important for healthcare administrators to understand the links between hospital consolidation and supply chain costs. Larger healthcare systems can get better supply contracts, but they need careful plans to control rising costs.
For administrators and owners, cutting down the number of vendors while watching quality and service is useful. Using data to make buying decisions and checking KPIs often helps keep finances stable.
IT managers have a key role by setting up and running supply chain and front-office automation tools. Adding AI solutions like those from Simbo AI into hospital systems can improve data accuracy, operations, and patient experience. Using these tools well supports hospitals in managing more work caused by mergers and growth.
Hospitals working across many states and markets, such as in cross-market mergers, face challenges in making supply chains work smoothly. Teamwork among clinical leaders, supply chain staff, and IT is needed to get the best results from consolidation while controlling costs.
This overview shows that healthcare consolidation changes hospital supply chain costs and financial results in many ways. While bigger size can help with buying power and efficiency, rising expenses and market changes are still issues. Using technology, analytics, and careful vendor management is important to control costs and keep hospitals financially healthy across the United States.
In 2021, there were 314 healthcare mergers and acquisitions, reducing the number of health systems to 1,093 from 8,310 active hospitals in the U.S.
Consolidation enables larger health systems to negotiate lower supply costs. However, reports indicate hospital supply costs have increased despite this potential.
On average, supply chain costs constitute about 30% of total hospital expenses.
The average total supply costs were approximately $30 million per hospital in 2020.
Hospitals and health systems spent a combined $2.4 billion in additional supply costs during the first four months of the pandemic.
Supply expenses increased by 15.9% from 2019 through the end of 2021.
PPIs are medical supplies used in treatments, such as devices and pharmaceuticals, and can account for 40% to 60% of total hospital supply costs.
Hospitals can minimize supply chain spending through awareness of spending patterns, financial management technologies, and affiliations with integrated delivery networks and group purchasing organizations.
97% of healthcare executives believe supply chain analytics can reduce costs, yet 64% do not use dedicated systems for managing their supply chain.
A supply chain system could improve hospital margins significantly, resulting in potential gains of $5 to $15 million for hospitals with $500 million in total revenues.
Simbo is using AI agents to automate all phone related workflows. Connect now to know more.
Schedule AI Agents Demo Now© Since 2019, Simbo AI.
