A second claim asserts that creating a larger health system will streamline supply chain and human capital systems. Perhaps these deals won't help us cut total costs, the claim goes, but at least we can get a cost advantage in these areas. The evidence for this is also not as strong as would be expected. A working paper from the National Bureau of Economic Research analyzed the data of merged hospitals from 2009 to 2015, and found that acquired hospitals saved an average of 1.5% on common expenses in the supply chain—or an average of $176,000 across 50 supply categories. But the acquiring hospital actually saw its costs rise slightly—about $300 per year. And overall, acquired hospitals only saved 10% of what they expected in their merger justification, while acquirers saved 0%.
This evidence, like much other data, suggests just how hard it is to integrate two organizations. For every statement about the potential benefits of a larger, streamlined supply chain, there's often no word of accompanying caution about how difficult it is for systems to actually realize those benefits. Rather, M&A often results in bloated organizational structures, duplicative IT systems, higher legal and consulting fees, and overlapping (often ineffective) communication channels. Suddenly, merged systems have twice as many people to communicate with and twice as many stakeholders with opinions on the best ways to proceed. If the two organizations have separate EHRs, the challenges to ever achieving synergies are even more daunting. Effective integration is hard, takes a long time, and—quite frankly—if hospitals can't implement initiatives effectively on a small scale, I am far more skeptical of their ability to implement them on a large scale.
Having worked with many organizations that have merged during my 25 years as a consultant, my rule of thumb for executive teams is that whatever amount of management time you have budgeted for integration, multiply it by three. Now ask yourself, given all the operating challenges you currently face, can you really afford that opportunity cost? In most cases, I believe organizations would be far better off putting that time and energy into the business of providing a better clinical product.