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By the numbers 2012

Feeling effects of consolidation

M&A prompting systems to look for new savings


By Beth Kutscher
Posted: December 15, 2012 - 12:01 am ET
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Consolidation among hospitals created a ripple effect this year that also swept through the outsourcing firms that serve them.

The mergers and acquisition frenzy of 2012 meant more systems were looking for ways to streamline back-office functions across all their hospitals—and outsourcing firms saw new opportunities to win those large contracts.

“You're really starting to see these mega-deals,” says Jeffrey Christoff, a principal at Deloitte Consulting, who leads their shared-services practice. “These hospitals are saying there's a ton of value in creating a single process.”

Christoff notes that a Deloitte survey of the top 20 hospitals based on revenue found wide interest in shared services. “Every single one has created some shared-services center,” he says.

And that means growth in what he describes as “emerging outsourcing areas,” such as financial services, human resources, payroll and supply chain and revenue-cycle management.

Yet the picture wasn't all rosy, as uncertainty around healthcare reform led many providers to take a wait-and-see approach toward outsourcing, particularly for information technology.

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With only nine months of data, the number of outsourcing transactions in the healthcare provider sector appears poised to come in under 2011's numbers, says Jimit Arora, vice president at Everest Group, a research and advisory firm.

Arora notes that in the first three quarters of this year, according to deals the firm tracks, healthcare providers disclosed only 22 outsourcing transactions, compared with 73 for all of 2011. The transactions represent those in the public domain.

And fewer of those transactions were in IT as healthcare providers waited to see whether key provisions of the Patient Protection and Affordable Care Act, particularly related to IT incentives, would survive.

While 2011 saw a 50/50 split between business process and IT outsourcing transactions, only one-third of 2012 transactions were IT-related, Arora says.

Yet Matamba Austin, managing director at KPMG, notes that large providers are taking another look at outsourcing since the future of the healthcare law was cemented by the U.S. Supreme Court ruling in June and the re-election of President Barack Obama in November.

Austin also points to heightened scrutiny from the Justice Department on detecting fraud and abuse as spurring interest in more rigorous risk-management programs. And he notes that providers are similarly trying to get ahead of billing changes such as the move to ICD-10 coding. Outsourcing firms are poised to benefit from those trends.

Arora also expects spending on health IT to accelerate as early as next quarter. “What we do suspect right now is that most people who were on the fence are going to frantically try to catch up,” Arora says. “The service provider community is obviously very excited.”


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