Episode 12. Mergers and Acquisitions with Oscar Santalo PharmD, MBA, MHA, BCPS

Definition

  • Merger & Acquisition – defined as the consolidation of companies.
    • Differentiating the two terms, Mergers is the combination of two companies to form one, while Acquisitions is one company taken over by the other

Background

  • Throughout the 1990s, mergers and acquisitions were prominent in the healthcare sector. After a drastic decline in the early 2000s, there was a resurgence of mergers and acquisitions in the market in the last ten years. According to Kaufman Hall, after just 50 health-system mergers and acquisition consolidations in 2009, the number has increased to 115 consolidations in 2017.
  • One major contrast between mergers and acquisitions is the propensity for acquisitions to become hostile
  • Vertical mergers occur when complement products or services consolidate. As it relates to healthcare, examples of vertical mergers include an outpatient pharmacy merging with a generic medication manufacturer, or CVS Health’s plan to purchase Aetna (2). Vertical mergers do not remove a competing substitute from the market, and for that reason carry less risk of violating federal antitrust laws.
  • Financial implications: Cost savings remains a driver in the pursuit of hospital consolidation

Horizontal mergers inherently lessen competition by removing an alternative source of a particular product or service from the consumer market. However, horizontal mergers may also create more efficient companies through reduced redundancies in services, lower capital expenses through shared resources, and supply chain savings obtained through large volume purchasing.

Operational Services

Strategic plan where vision should focus on pharmaceutical care and highlight the strengths of each department that add value to the organization

  • Opportunities in budgeting a volume-based discounts on drug purchasing utilizing group purchasing organizations (GPO), formulary management and standardization, perpetual inventories, and direct manufacturer contracts, cost savings can be realized.
  • Concerns: Staffing productivity, formulary mgmt.

Clinical Services

  • Pharmacy departments within expanding health-systems may undergo a drastic overhaul to the clinical services provided by their department following consolidation.
  • Hospitals entering a larger health-system may be faced with required implementation of established pharmacy services including the use of therapeutic interchanges, intravenous to oral conversions, dose rounding, and therapeutic drug monitoring protocols used throughout the existing system. These services can be accomplished through the utilization of clinical decision support systems (CDS).
  • Pharmacy departments and health-systems will need to create and manage their inpatient formulary

Summary

  1. M&As impact pharmacies financially through labor, supply chain, and strategy
  2. Opportunities in buying power and organizational support when merging with a larger system
  3. Formulary mgmt., clinical services, and productivity should be the highest of concerns

References

Iredell B, Farano J, Corsi MP, Santalo O, Covert A. Clinical and financial impacts on pharmacy surrounding health-system mergers and acquisitions [published online ahead of print, 2019 Dec 1]. Am J Health Syst Pharm. 2019;zxz263. doi:10.1093/ajhp/zxz263. [PMID: 31788688]

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