TheKey Financial Drivers that most likely will Cause Health CareOrganizations to Merge
TheKey Financial Drivers that most likely will Cause Health CareOrganizations to Merge
Overthe past two decades, hospitals have continued to merge with otherfacilities, profit companies, and insurers to assure alignment in thehealthcare framework. Consequently, most of the hospitals are focusedon having alignment with other facilities to consolidate servicesoffered. For example, according to a survey that was conducted byBrown(2014),the resulted indicated that 14 percent of the hospitals in the UnitedStates were intending to maintain an independent rather than mergingwith other health systems or hospitals. However, the other 86 percentsupported the issue of hospital alignment or merge, and theyconsidered it in their strategic plans. As a result, there arevarious factors that must be considered before engaging in mergeragreement with other hospitals. Firstly, it is crucial to know thedriving forces towards the merge. According to Farr,Grefer, & Schaefer (2006),most of the hospitals have cited financial problems and lack ofenough healthcare resources as the main drivers of seeking to joinhand with other hospitals. Additionally, there are other drivers thathave led to a collaboration that is mandated towards achievingaffordable care the act is also focused on changing the models usedon healthcare reimbursement (Brown,2014).
Onthe other, innovation and the rapid growth in technology are also thedriving forces in hospitals merge in order to meet the modernnecessities in healthcare facilities. For instance the use oftechnology in healthcare have enabled smaller and large hospitals toestablish specialized medical services, keep electronic medicalrecords, and to offer extended medical services to the respectiveclients (Brown,2014).Consequently, use of modern facilities and technology has made iteasier for various hospitals to comply with the required healthreforms and requirements.
Onthe other hand, there is much pressure from the government that isescalating the intensity of hospitals merging. Consequently, thehospital merging is considered to be significant in the currenttrends in healthcare today. Moreover, some hospitals are merging toachieve a competition advantage over the others and to gain highvalue in the market in the near future. In the healthcare sector, theissue of hospital merger has become a burning issue forcing theexecutives in healthcare maneuvering successfully in the healthcareindustry (Yu,Engleman, & Van de Ven, 2005).However, the hospitals are supposed to follow the right proceduresand processes when initiating a merge in this era of hospitalconsolidation. Consequently, any financial analyst is supposed todetermine the financial progress of hospitals that merge and makeproposals that are meant to help the hospitals with small healthsystems to merge with hospitals with large health systems to gainindependent on service delivery. The financial analysis can use thelevel of income or the number of clients attended per day todetermine the success of the merge. Moreover, the financial analystcan give recommendations to help the hospitals to boost their profitsby cutting the medical costs that are unnecessary this leads tosavings on types of equipment and other overheads.
However,the main challenge is to find a right M&A partner as evidence ina survey that was carried out by Nguyen& Kleiner (2003).However, most of the hospitals are committed to meet the rightpartners who are ready to work within the specified boundaries andconditions set by the government and hospital management.Additionally, the hospital officials affirm that the hospital issupposed to partner with another hospital(s) to survive in thegrowing trend in the hospital. This has helped the hospitals toachieve long-term viability and competitive advantage in thecommunity. Consequently, to achieve positive response and changes inthe healthcare system, the management should know the factors and themain drivers to hospital mergers this will help the hospitals toachieve a proactive strategy that is aimed at achieving maximumsuccess in the health industry this is an era of consolidation.
Factorsthat drive the financial planning process in organizations in theirpost-merge phase
Asstated earlier there are factors that determine the success of amerge post-merge phase is crucial because it determines the overallimpact of organization’s growth and operations. Post-merge phase isa complex phase that requires effective changes in the managementteam, services and ensures that there is effective communicationamong the members of the merged hospitals (Nguyen& Kleiner, 2003).As a result, the financial planning process in post-merge phase isdetermined by the objectives, strategies, and vision set by themerged organizations. Consequently, the process is determined byfactors such as harmonization of the management, management incentivesystems, managing talents, sharing ability, and effective knowledgetransfer among the merged members (Nguyen& Kleiner, 2003).Additionally, the ability to retain the right people in theorganization significantly contributes to financial advances in themerged organization.
Asa result, to aid in the financial planning process, the mergehospitals are supposed to transfer their knowledge into a common pooland share it among the integrated units, retain the key individuals,and employ modern technology such as electronic record-keeping,online medical services, and overall health management systems.Moreover, the financial analysts should play their role in advisingthe organization on its financial operations. This will help theorganization`s management to understand clearly the changes and gainthe courage to face the financial outcome either positive ornegative. Consequently, the management should develop a financialstructure that guides on its spending, services offered, and theexpected outcomes this is meant to meet effectively the desiredchanges (Yu,Engleman, & Van de Ven, 2005).As a result, every merged hospital should develop a roadmap showingwhere it will land financially and physically. Additionally, the twohospitals should agree on what aspects they will leave behind andwhat will be used in financial planning during the post-merge phase.The entire process is determined by the management.
Forthese reasons, it can be argued that financial planning process is ofgreat value to a healthcare organization. According to Mamatov,Mazanyy, & Kristensson (2010),there are different financial needs from “now” and “then” inthe post-merge phase. As a result, the merger is seen as a crucialresponse that is meant to help to reduce the pricing pressure in thehealthcare management and penetration. In addition, the current trendused in post-merge phase in most of the organizations is multi-casualmaking it easy for financial planning. Moreover, the financialplanning determines vibrancy of the local market making the servicesand the hospitals deals to have equity participation, especiallybetween the public and private health center.
Forexample, in the United States, the total expenditures are expected toincrease by 20% of its GDP. Additionally, through the effectivefinancial planning, most of the healthcare providers relatively gainstability and gradual progress in the services offered after thepost-merge stage. Moreover, most of the effective financial planningin the post-merge phase is seen as a stable investment plan thatpromotes equity in the healthcare sector market the financialplanning is also critical because it help in avoiding financialcrisis.
Lastly,it is evident that the healthcare facilities require massiveinvestment in infrastructure and adequate access to capital. However,according to a report that was released by the American HospitalAssociation (AHA) in 2014, the results indicated that most of thehospitals operated in a negative margin during their pre-merge phasedue to poor financial planning. On the other hand, 11% of thehospitals showed a profits margin that was less than 3%. This showsthat most of the hospitals are facing challenges when obtaining therequired capital required for investment. On the same hand, financialplanning is essential in post-merge phase because the process ofhospital integration requires cash for effective investment. However,Fuchs(2010) arguedthat for the effective merger of two or more hospitals, the hospitalsmust use effective paths that lead to survival. However, thefinancial stability of the healthcare industry will remain to bestable in next five years. This is because most of the merginghospitals advocate for financial and health care accountability. As aresult, it is paramount to establish a cost upgrade in the healthcareinformation systems that are required in the clinical careintegration thus ensuring financial stability. Lastly, financialstability can be predicted because most of the merging hospitals areconsidering the use of different models that ensure effectivehealthcare services that are less costly.
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