How strategic procurement can maximize M&A benefits

Merger and acquisition (M&A) activity in the healthcare sector continues at a brisk pace as organizations seek to decrease their costs, expand service offerings and enhance their market presence. Strategic procurement can play an important role in maximizing M&A benefits.

Consolidating procurement can slash costs by standardizing purchasing processes and taking advantage of volume discounts for supplies. A smart business buying strategy involves using one technology platform for purchasing a wide variety of products from multiple sources.

M&A activity

Strategic consolidation among healthcare systems continues to be a trend shaping M&A activity, according to a recent report from market intelligence firm AlphaSense.

Hospital and health system M&A activity increased 27% year-over-year in 2023, and a flurry of deals has been announced since the beginning of this year, AlphaSense reports. The deal market in this sub-sector is fueled by a continued effort to keep operating costs in check, increase efficiencies and shared resources, and maintain a high level of care delivery.

Similarly, an analysis by the consultancy McKinsey predicts that healthcare delivery will continue its restructuring in the months and years to come. The definition of at-scale health systems has changed in the past few years, the consultancy notes. Today, it takes more than $13 billion in revenue to be a top-20 system. Many of the largest health systems have reached their current position through inorganic growth.

The recent wave of M&As, McKinsey’s analysis states, has been characterized by cross-geography deals designed to create value by scaling investments in platform capabilities across digital, analytics, shared services and workforce management. Beyond scale, sites of care have shifted increasingly from the hospital to ambulatory, home and virtual care.

As healthcare organizations expand their footprint through M&A, their supply chains become increasingly complex, spanning a diverse range of care sites. Centralizing the purchasing function is crucial to address this complexity, enabling healthcare leaders to consolidate purchasing, leverage bulk buying power and leverage data-driven insights to optimize procurement.

New procurement strategies

A recent report from the consultancy SC&H lists five procurement strategies to drive post-merger success:

1. Leverage audit insights to negotiate optimal contract terms.

Common contract issues, such as overbilling and inconsistent pricing, can erode the anticipated value of the integration, SC&H points out. Managing the transitions, negotiating favorable terms and ensuring compliance are key to achieving procurement synergy between the legacy companies. A contract compliance audit, performed by a third party following M&A integration, can help bring these issues to the forefront, identify cost-saving opportunities and increase supplier transparency, the consultancy notes.

Driving down costs by standardizing purchasing policies throughout the enterprise and negotiating deals for high-volume items can be achieved while maintaining quality standards by relying on the most trusted brands.

2. Acquire more data to drive better insights.

Organizations can leverage additional data acquired through the M&A process to gain a deeper understanding of third-party relationships. This includes:

• Supplier data, such as information about pricing and performance;
• Spend data, including how much the organization spends on different categories of goods and services to discover cost-saving opportunities; and
• Contract data, which can be used to identify cost-saving opportunities and ensure compliance with existing obligations.

3. Optimize spending through supplier assessment and consolidation.

A comprehensive analysis of the newly merged supplier base is key to eliminating suppliers providing the same goods or services, negotiating better terms with strategically selected vendors and consolidating suppliers to achieve cost savings through economies of scale.

Integrating procurement technology increases opportunities to automate processes and supports compliance.

4. Maximize savings through price alignment.

Procurement teams can take several steps to remove redundancies and streamline processes to ensure the lowest prices are applied uniformly across the enterprise, SC&H notes. Those steps include:

• Streamline all purchasing through a single department to eliminate duplicate spend, negotiate better prices with suppliers and ensure that pricing is consistent across the enterprise.
• Establish standardized agreements to identify pricing inconsistencies or inaccuracies, remove redundancies and consolidate suppliers where needed.
• Evaluate whether the organization is paying competitive prices and negotiate with suppliers to bring prices down to a competitive level.
• Set rules and guidelines for how prices are determined and how price changes are approved to ensure pricing decisions are made in a consistent, transparent manner.
• Centralize procurement and payment processes in a single platform to increase the visibility of spend data, supplier information and contract terms.

5. Identify and correct errors that occur during the M&A.

Errors during the transition period following a merger can range from simple mistakes in data entry to more complex issues with integration and process changes, the SC&H report states. An effective reconciliation process will compare the data from merging entities to ensure that everything has been properly recorded and integrated.

Realizing the Benefits

Consolidation of supply chain technology platforms after a merger can open the door to:

• Achieving savings while still maintaining quality;
• Centralizing data for better insights;
• Automating all processes uniformly while achieving compliance;
• Standardizing products and services across the enterprise;
• Exploring more strategic partnerships to develop customized solutions for their organization’s unique needs.

The bottom line: By implementing the right post-M&A procurement strategies, including stakeholder alignment and effective execution, organizations can leverage their increased purchasing power and achieve economies of scale.

Challenges and opportunities

When integrating procurement processes after M&A activity, however, merging entities must resolve cultural differences and determine the best ways to overcome disparate systems so that purchasing operations can be consolidated and supply chain management can be streamlined.

The goal is to enable purchasers from throughout the organization to use a single system to procure a wide variety of products, including high-volume items, such as office supplies, EVS supplies and IT peripherals.

Optimizing supply chain operations

Analytics can play an important role in optimizing supply chain operations after a merger.

By using a single procurement system, all purchasing data is compiled in one database, which enables procurement leaders to monitor purchase patterns and be more proactive in spending decisions and identifying ways to save, such as through volume purchasing.

The value of strategic procurement

Given the long list of issues that must be addressed following a merger or acquisition of any size and scope, optimizing procurement may not be top of mind.

But M&A activities offer a perfect opportunity to reevaluate and strengthen procurement strategies. Smarter buying strategies, such as leveraging one technology platform to procure a wide range of products, can enable newly merged entities to control costs while ensuring all clinicians have timely access to all the supplies they need to provide high-quality care.

Originally published in Fierce Healthcare.