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10 Lessons From Leaders Who Have Merged or Acquired Hospitals

There is no instruction manual when it comes to hospital mergers, acquisitions and affiliations. Sometimes it is simply most helpful to hear from leaders who have been through these transactions speak on what they've learned. Here, three hospital and healthcare executives dispense advice, findings and lessons learned from their experiences in acquiring, merging or affiliating with other providers.

1. Consider an engagement before marriage. There is often a misunderstanding regarding possibilities for hospitals and health systems pre-merger. For instance, some hospitals agree to let the acquiring facility manage a handful of services for a couple of years. This can illuminate any cultural setbacks that may lie ahead while allowing both entities to see if an extended relationship is in their best interest.

Jeff Rooney, CFO of Saint Agnes Medical Center in Fresno, Calif., was CFO at St. Vincent's Health System in Birmingham, Ala., which expanded to four hospitals as the result of a merger. He encourages management or other affiliation models before jumping the gun on a sale or merger. "You don't need to go from zero to 60," says Mr. Rooney. "I've seen successful models where boards discuss, and say, 'We'd like to merge. We think it will happen, but let's get engaged before we get married.'"

2. It makes sense to integrate some things immediately.
If hospitals have made the decision to merge or affiliate, some components of each hospital can be integrated immediately or pre-merger. For instance, Mr. Rooney says he has worked with hospitals that have centralized their staff prior to the merger and also worked to integrate their revenues. "The vice president of revenue cycle took the teams from each hospital and relocated them into a centralized business office," says Mr. Rooney.

3. Many integration issues aren't operational, but cultural. Mergers often begin with a keen focus on the strategic reasons behind it, which can then fall to the backburner as operational tasks grow in number and importance. "Strategic thinking has to continue post-merger," says Mr. Rooney.  Integration is often pursued as a list of tasks, but so many integration issues are not operational but cultural. By keeping an eye on the transaction's strategic vision, and making it available and known, the hospital can build support from both employees and community members.

4. Benefits to each side should be balanced and recognized throughout the transaction. Hospital mergers or acquisitions are a delicate relationship. To solidify it and prevent distrust or apprehension, both parties should be reminded of the balance of benefits as they move through the transaction. It sounds simple in theory, but benefits can become misunderstood as the transaction gains speed and tasks build.

Russ Guerin, the executive vice president of business development and planning for Carolinas HealthCare System, which includes 33 hospitals operating in North and South Carolina, says it's important for both parties to feel there is balance between the benefits of an acquisition, merger or affiliation — whether financial, economical or clinical. "We bring a size and depth that many hospitals cannot get on their own," says Mr. Guerin.  "But we also benefit from the integration as well — we learn things and it helps us diversify." The more balance, the more each party will receive from one another.

5. A hospital's communication team is often put to the test. Consolidations or transactions can spur strong community reactions, and thus public relations concerns for hospitals. An excellent communication staff, however, can prevent roadblocks by recognizing community leaders and ensuring their involvement. For instance, an effective communications team will identify 10 key leaders the CEO needs to communicate with about the merger or sale — and quickly. "Community leaders and members like to be informed and know they've had a chance to voice their opinions or concerns," says Mr. Rooney.  

6. Cultural shifts won't occur overnight, but subtle changes help staff transition.
There are various approaches to take when it comes to cultural changes, with each being situation-dependent. Some systems mandate change and implement it from the start, whereas other hospitals may choose to subtly introduce changes to medical staff, employees and patients.

For example, Mr. Rooney was acting CFO for a Catholic hospital that acquired secular facilities and slowly introduced change. "We built chapels in those hospitals. We made sure Sisters were present regularly in them. You don't go overnight into absorbing the culture of a Catholic hospital," says Mr. Rooney. "It takes time. Start with the basics and begin building that identity." For this delicate transition, an organizational development leader needs to help people in the individual hospitals understand what it means to become part of a Catholic system.   

7. Be wary of the word "synergy." Mergers can be oversold for their "synergistic" benefits, such as lower costs, expense savings or operating leverage. "When you look at a sale, some people expect to see lower costs. But on a pure dollar basis, expenses may be higher but performance is through the roof. Productivity was more important than synergy," says Mr. Rooney. In the short-term, post-merger, there are few synergies — or financial gain — within 12 or 24 months, according to Mr. Rooney. Rather, a consolidation or transaction has much more to do with creating a larger force in the local market during that time.

8. There's been a focus shift to quality measures rather than financial advantages.
Focus has recently shifted from financial advantages to the quality arena. Hospital boards are increasingly looking at quality results and turning to larger systems to help improve them, according to Mr. Guerin. "Quality in healthcare has become a much more visible component than it was in the past. There is a lot more transparency in quality than there used to be," he says.

Mr. Guerin also mentioned that most acquirers, including Carolinas HealthCare, do not pursue mergers or transactions simply for financial gain, but rather how they may expand clinical services into communities in need. Therefore, a struggling hospital with poor financial results is not necessarily off the market.

9. A successful merger experience can be a selling point for future hospital relationships. When choosing a partner or acquirer, hospitals will want to know what expertise candidates have in hospital transactions. Carolinas HealthCare, which has acquired many facilities, often points out the fact that few hospitals have left the system since they joined. Experience and expertise in hospital mergers, acquisitions or other affiliations can be a selling point in itself. Other aspects that prove an organization is skilled in transactions include an integration team whose core competency is integrating hospitals, which Carolinas HealthCare also offers.

10. Physician relationships are a determining factor. Hospital-physician relationships have been discussed as a criteria or influential factor when hospitals go to market. Jeff Nelson, a partner at Tatum who helped prepare the two-hospital system Empire Health Services in Spokane, Wash., for its acquisition by Community Health Systems, confirmed this piece of advice from the buyer's perspective as well.

"Buyers or partners will look at the number of physicians referring patients to hospitals and consider what kind of relationships they have. They want to see how engaged these physicians are with that hospital or how it can be improved," said Mr. Nelson. With a focus on integrated health, where hospitals and physicians work to improve quality and lower cost, hospital-physician relationships will continue to be a large criterion when it comes to successful mergers, affiliations or acquisitions.  

Read more about hospital mergers and acquisitions:

-5 Tips for Leading a Hospital Through a Merger or Sale

-8 Recent Hospital Transactions

-3 Questions to Ask Before Merging or Selling Your Hospital

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