The Patient Protection and Affordable Care Act has put pressure on hospitals and health systems to coordinate care and to innovate, which has led to an increase in mergers and acquisitions in the healthcare industry. Along with succumbing to PPACA pressures, some hospitals are choosing to merge to improve leverage with commercial payers and help them in managed care contracting.
Many mergers are publicly touted as being aimed at improving quality of care and providing cost synergies. In a recent Wall Street Journal opinion piece, Kenneth L. Davis, MD, president and CEO of Mount Sinai Health System in
Dr. Davis said mergers can also "reduce unnecessary overlap in regional healthcare offerings," which increases efficiency and eliminates unnecessary costs. After Mount Sinai Health System merged with Continuum Health Partners last year, the system had two kidney transplant centers that were located approximately a mile and a half apart. The health system combined the two kidney transplant centers, which, according to Dr. Davis, reduced unnecessary costs and benefitted patients by providing one center that does a much greater volume of procedures, rather than having multiple centers performing fewer.
In some mergers, the cost savings come from reducing duplication in leadership. If a larger organization can reduce executive costs by eliminating duplication over a larger revenue base, it may seek to do so to decrease the costs as a percentage of revenues.
In a recently announced affiliation, the organizations said they would essentially have co-CEOs for a period of time. However, this is not the reality in the majority of mergers. In most mergers, the combined organization will have to choose one CEO and one CFO, and the same is true of many other top leadership roles.
The leader selected for the combined organization
For the selected CFO, mergers can create tremendous opportunity, as the leader gets to run a large finance department.
This month, Beaumont Health System in
For Mr. Keuten, the merger created great opportunities. As CFO of Oakwood Healthcare, he managed the finances of 4 acute care hospitals and 65 outpatient sites. In his new role, his responsibility will more than double, as he will lead the finance team in charge of eight hospitals with a combined 3,337 beds and 153 outpatient sites.
The leader not selected
For the non-selected leader, organizations tend to either find the best possible internal spot for the CFO or request the CFO find another job outside of the organization.
Finding alternative internal positions for CFOs post merger, allows the newly-formed organization to retain the best people from both hospitals and avoid conflict. This can be a great boon for most organizations, since many do not have great depth of leadership.
When organizations politely, or not so politely, ask a CFO to seek employment outside of the organization, the CFO may be offered severance or transition payments.
There are some mergers that are driven by a board who itself does not have the stomach to eliminate positions and pursues a merger because there is no easy way to otherwise eliminate leadership and staff. Here, the CFO should expect to look for a new job.
Retention throughout the process
Managing the selected and non-selected CFO through a merger process is critical, as leadership is vital to successfully completing the transaction. In addition, if the merger does not occur, the parties want to leave the transaction with their leadership teams as intact as possible.
With the number of hospitals interested in mergers increasing, there are going to be more successful deals, where hospitals need their leadership throughout the transaction. Ninety-eight hospital and health system combinations were announced in 2013, 87 of which involved nonprofit organizations, which signified a 51 percent increase since 2010, according to data analysis from Kaufman-Hall.
However, with increased interest in mergers, there are also going to be more negotiations and unsuccessful deals, and it is vital the hospitals involved in these transactions hold on to their leadership.
Applying skills at other organizations
Even if a CFO is not selected to help lead a newly-formed organization, the experience and skills they acquire during the merger process provide them with an invaluable skill set that prepares them for leadership roles at new organizations.
Some CFOs engage in serious professional reflection and consider whether to seek another CFO position, a consulting job, or to move out of the healthcare industry, while others make the decision to retire.
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