1. A merger may cause organizations to lose their marketplace standing. An important question to ask during a merger is this: If Hospital A is merging with Hospital B, what is Hospital C doing during this time?
Kevin Burchill, director of healthcare management consulting firm Beacon Partners, was involved in merger and acquisition activity as a hospital leader with both non-profit and for-profit systems and companies in the Northeast and Mid-Atlantic regions. He found hospitals would spend 12-36 months looking inward, assessing their organizations and performing due diligence. “As you’re looking inward and your former competitor is looking inward, other competitors in the marketplace derive benefits in the short-term,” says Mr. Burchill.
Merging hospitals will avoid capital investments, avoid building and avoid an aggressive strategic 3-5 year plan. “Hospital C’s executives can look at their competitors involved in a merger and say, ‘Now is the perfect time to kick off that cancer center,’ for example,” says Mr. Burchill. Capital advancements drive consumer demand and leave the merging hospitals stuck in the same place — focused on moving towards one another rather than ahead — for up to three years.
2. Culture will determine how quick organizations can catch up. How long will it take for the newly merged organization to catch up to Hospital C and the strategic progress it has made in the past 1-3 years? That depends. “Cultural alignment will determine how fast this new organization can catch up,” says Mr. Burchill.
For instance, if the merged entity has boards that work in different locations and various other components that are not yet integrated, the organization may require additional time to complete an extended “getting-to-know-you” process. However, if the merger came off quickly and the hospitals were aligned for the right reasons, it is more likely to move forward and advance its strategic and capital development.
3. Size and scope may beat out culture for the time being. While culture may determine how quickly a merged organization can catch up to its non-merged competition, culture is likely to remain a second thought in a consolidating healthcare industry. Since the current challenge is in achieving ACO-readiness, hospitals are likely to maintain focus on the size and scope of potential partners rather than their organizational culture. This has been exhibited in Massachusetts. While hospitals are rapidly consolidating, particularly under Boston-based Steward Health, the trend has not been restricted to hospitals alone. For instance, Atrius Health and Fallon Clinic, two well-respected physician groups, just announced affiliation discussions last week.
“Everybody — whether an existing system, an insurance company or physician groups — everybody is looking at the potential to grow larger,” says Mr. Burchill. A cultural transformation typically takes 3-5 years, so culture is going to take a back seat for many organizations as they first invest and expand to strengthen their position in the ACO marketplace.
4. Small, rural providers will continue to form clinical affiliations. More commonly, small, rural providers are taking on “clinical affiliations” opposed to full-out mergers. These loose referral patterns form a logical network between hospitals, physician groups or specialists and allow each to maintain their local autonomy in a rural setting.
“These are popping up more than I’m seeing mergers,” says Mr. Burchill. “It’s been a trend of the last couple of years. They know they don’t want to sell, so this is a more creative arrangement. You could compare it to dating before walking down the aisle,” says Mr. Burchill.
5. Technology tops a lengthy list of ACO-partner criteria. When considering an organization as a potential partner or affiliate for an ACO, hospitals face a lengthy checklist. One of the most discussed, if not most important, criteria is technology. “Don’t minimize the technology piece,” says Ron Wince, president and CEO of Guidon Performance Solutions, a performance management company. ACO development between organizations will be increasingly difficult without an IT plan or infrastructure already in place. “You’ll be throwing darts at pricing,” says Mr. Burchill.
Other considerations include economic viability, which will either make or break an affiliation, along with performance metrics. “How good is this entity you’re working with?” says Mr. Wince. “Examine their outcomes, patient satisfaction and employee satisfaction. Those are very telling of whether they’ll be a reliable partner,” says Mr. Wince. “If they have attrition from the staff or patient perspective, then you’re going to run into problems because you won’t be able to serve patients as an integrated system.”
Related Articles on Hospital Transactions:
11 Recent Hospital Transactions
4 Ways to Ensure a Successful Hospital Merger or Acquisition
For-Profit Hospitals Expected to Multiply in Massachusetts
