4 Steps to Equipment Rationalization in M&A

4 Steps to Equipment Rationalization in M&A

An IV pump is probably not the first thing healthcare organizations think about when merging health systems. However, something as simple as an IV pump is an excellent example of how healthcare mergers and acquisitions can become extremely complicated and difficult to navigate at a granular level, introducing hidden pitfalls, costs and opportunities. Without a streamlined equipment rationalization process, things can fall through the cracks.

Biomedical equipment is an integral part of a high functioning healthcare system. An IV pump is a small, but vital, piece of equipment in virtually every patient room. It’s touched in one way or another by everyone involved with direct patient care, IT, pharmacy, lab and biomedical engineering.

What happens to these IV pumps when one healthcare organization merges with another? Duplicate equipment is consolidated. Equipment may or may not be compatible with core networks and software systems such as the Electronic Health Record (EHR). If the acquired hospital has newer pumps, it would seem logical to replace the older ones. However, for a nurse who has specific training on the older IV pump and years of hands-on experience, replacing the older pumps with newer ones may not be the best choice. Not to mention the time, effort and cost to evaluate, contract, acquire, install and train on the new equipment.

Arriving at an informed decision in this scenario requires due diligence and a process for equipment rationalization and contract consideration. It also requires a deep understanding of the people impact to determine the downstream effects.

Bedside vitals monitors, EKGs and point-of-care lab testing equipment all pose the same challenge to a healthcare system. Different products now need maintenance and support, integration with their EHR, upgrades, and more.

Platform and Equipment Standardization

Is it better to standardize on one platform and potentially have to get rid of substantial equipment and possibly increase cost significantly? If the answer is yes, organizations also must factor in training, rewriting policies and the considerable effort involved in replacing these devices. Even if organizations set the financial investment aside, it is not a trivial decision given user and patient experience, as well as the downstream impact for IT, biomedical engineering and clinical educators.

The challenges do not stop with biomedical equipment. The same issues arise during M&A with network infrastructure. There are many scenarios where one organization has built their network infrastructure on top of a specific platform or set of products from an enterprise vendor and the hospital they are merging with or acquiring has another enterprise vendor as their base. Much like two restaurants merging with different beverage suppliers, it isn’t cost effective to have both Coke and Pepsi. Often the costs and other impacts require health systems to maintain both states for at least an interim period while transitioning to an enterprise solution across the new organization.

The IV pump is an example of the many small decisions that contribute to the overall value realized as part of M&A. It can be daunting given the number of discrete decisions to be made. That said, there are 4 steps to successfully navigate these challenges for the best possible outcome. Regardless of whether it is an IV pump or an entire wireless network that might have to be replaced or rationalized, the steps for reaching the best decision for everyone involved are the same.

1. Assess Inventory

This is always the first step. Organizations need to figure out what their options are. Start with inventory and evaluate what you have. Often, healthcare systems do not always have a good assessment of what they already have in house for both organizations.

2. Consider Contracts

Look at product capabilities and contract terms to evaluate what the options are. Is it possible to break a contract if necessary? Sometimes there are terms or agreements that organizations can advantage of. Sometimes there is more buying power together, so explore upgrading the contract to include the other organization.

3. Rationalize & Decondition

Do a functionality gap assessment to determine if one solution delivers more clinical or operational value than the other. Determine when contracts expire to see if equipment is nearing end of life or in need of replacement. Build a new cost model and overall project plan.

4. Appreciate the People Impact

Although the end user should always be taken into consideration, all too often organizations get buried in spreadsheets during M&A and forget to consider the human factor. It’s best practice to get many stakeholder viewpoints before making any decisions. It’s also imperative to always consider bedside impact. In specialty areas where people have expertise with certain equipment, additional training may be needed to support any changes. Often, you have to retrain some of the administrative team and clinical staff as well. In addition, change management should be considered for nurses or technicians who interact with equipment that may work differently than what they are used to or were trained on to drive adoption.

Fewer Headaches, More Value

With every healthcare M&A transaction — joint-venture, partnership and affiliation— CIOs must evaluate, integrate and rationalize complex IT to unlock cost savings, enhance data sharing and uncover opportunities for clinical and business value. Deliberate equipment rationalization during M&A is a critical part of realizing transaction value.

Pivot Point Consulting’s M&A team is experienced in leading JVs, acquisitions, affiliations and Epic Community Connect initiatives for leading academic medical centers and IDNs nationwide. Our healthcare M&A team conducts comprehensive IT due diligence, integration planning and risk management across IT systems, services and human resources. We bring deep financial acumen and proven tools to identify integration costs and synergies. This can inform pragmatic budgets, timelines and outcomes.

Pivot Point Can Help

Pivot Point Consulting works with clients nationwide in IT M&A and affiliation planning to support organizational growth and clinically integrated network development. We bring the expertise, experience, framework and tools and assist clients in planning for and optimizing their broader technology ecosystems with and across their M&A and affiliation community. Need help with your M&A? Contact our experts today.