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Understanding healthcare joint venture entities, part II

After understanding and creating the right legal entity for your combined healthcare entity, the key to success is fully engaging the employees of both organizations.

(Authors’ note: the first article in this series, “Understanding healthcare joint venture entities” published in August 2017, focused on explaining the different varieties of joint ventures healthcare organizations are entering into to evolve and succeed in a time of change in the industry. Since publishing that article, we have seen significant M&A activity that will further disrupt business as usual, with the potential to significantly alter how patients access and receive care. After mega-health plan deals were legally blocked due to competitive concerns, we have seen a progression of merger announcements that may be more impactful in their member/patient impact.)

Mergers and acquisitions are on the rise. Retail giant (and pharmacy benefits manager) CVS has made a bid to acquire Aetna; Optum (a subsidiary of UHG) has made a bid to acquire DaVita Medical Group; and the announced mergers of Dignity Health and Catholic Health Initiatives (CHI) and Providence-St Joseph’s Health and Ascension Health will lead to significant vertical and horizontal consolidation in the industry. These M&As also bring up interesting considerations around how to successfully integrate unique business models and organizations. As a likely foreshadowing of future healthcare consolidation and partnership, how should healthcare organizations approach the integration of two organizations – with unique cultures, management structures and business models – to be successful and realize the benefit of the combined organization?

Regardless of the type of affiliation or transaction, the key to success is fully engaging employees of both organizations. A simple analogy involves engaging the Head, the Heart and the Hands of the employees to realize the value of the combined organization.

The Head

To maximize the impact generated by your employees, it is critical that each employee fully understands how their role connects with your strategy and how they create value for customers, coworkers and shareholders. The reality of transactions, especially large ones, is they often require a fundamental shift from how an organization was operating prior to the deal to realize the economic thesis and strategic objectives that drove a “go” decision for the transaction. Are functions that were once understood to be corporate now actually regional due to a vastly different footprint? Are newly acquired capabilities or assets now key to realization of your future vision, displacing what was deemed to be your strategic core for the previous 10 years?

To achieve success both during the process of the transaction and when migrating to “business as usual” post-close, organizations must thoroughly and repeatedly educate their employees about the new realities of the combined organization. It must be clear what is required of each department for the combined entity to be successful – because there is a high probability these requirements will be different from what was understood prior to the deal. If the goals and objectives are not put into context and relatable to employees’ job and objectives it will more difficult, or impossible, for them to contribute to its successful achievement.

The Heart

The nature of transactions create a degree of uncertainty for many individuals and teams, on both the buy and sell side. How will my role change? Will I have a job? What will happen to current leadership? Will we be the same organization after close? The perceived or real answers to these questions, as well as many other similar questions, have a direct impact on employees’ emotional connection to the organization.

To realize positive business performance prior to and post-close of a transaction, employees must be fully engaged. For this to occur, employees need to feel connected, valued and valuable to be motivated to contribute fully in their role and to the organization overall. Employees will only fully “lean in” to their work when their heart is in it. To capture the loyalty and hearts of your employees, you must actively and repeatedly engage them around a “True North” for the combined entities that will last long after the formal integration effort is complete. This is a cultural stake in the ground that will define an emotional connection that employees can rally to, even when business cycles ebb and flow.

The potential combined entity of CVS and Aetna is fascinating, with the new organization significantly affecting their business model and market position. How does CVS present a compelling message to capture the hearts of their retail employees to both rally around a mission of “Helping people on their path to better health” and reinforce the strategic investment in Aetna? In an initial step, CVS stores stopped selling tobacco. Here is what happened. Despite the resulting sales impact, selling tobacco did not resonate with the heart of their mission and, importantly, the CVS Health Research Institute reports a positive effect on public health. More recently, the CVS Beauty Mark project illustrates a commitment to promoting beauty products authentically; further aligning to a consistent ‘healthy’ message to consumers and employees.

Another example of connecting the hearts of employees to a changing mission is reinforcing an environment of innovation where employees feel empowered to experiment and fail. Encourage them to be bold and reinforce the value of iterative design and failing fast. If people are afraid to make a mistake or unwilling to change course, you will stall and not achieve the value of the combined entity.

The Hands
For employees to perform at their best, they must have the tools they need to efficiently and effectively execute their jobs. This holds true for both individual contributors and members of teams. During a transaction, successful organizations assess their unique execution requirements and often deploy different tool sets during three distinct phases of the transaction: prior to close, in the transitional period post-close, and when the collective organization settles into their new “business as usual.” Each phase presents different execution opportunities and constraints, thus a single tool set rarely suffices. For example, prior to close tools must be deployed that enable successful integration preparation while respecting the legal and regulatory boundaries required to maintain two distinct organizations. Post close, tools are often deployed on an interim basis to allow the two organizations to work together during the integration period.

Long-term, new solutions that enable the strategic vision and economic model for the combined entity are required. In some cases, tools will be consolidated to drive efficiencies and reduce complexity. In other cases, new tools are required to efficiently enable the new business model (e.g. cloud-based SaaS Platforms). In the end, it’s crucial that leaders take the time to thoroughly understand the execution needs of their employees throughout the lifecycle of the transaction and deploy tools that allow them to fully execute their jobs at the varying stages of the transaction.

It will take time for mega-deals like CVS and Aetna, Dignity and CHI or others to reach their true potential. For many of their core businesses, the mantra of “what got you here, won’t get your there” will likely hold true. Only by strategically engaging the Heads, Hearts and Hands of their employees throughout the process will they realize the return on their vision. As experienced affiliation advisor Joe Lupica of Newpoint Health, put it, “Transactions usually start off with some big promises. Only when the entire team aligns around a shared culture will the new organization have a chance to convert promises into reality.”

About the Authors:
Matt Henry and Dan Avery are principal consultants with Point B, an integrated management consulting, venture investment, and real estate development firm. Matt Henry is a leader in Point B’s national healthcare practice and Dan Avery leads Point B’s Merger and Acquisition practice.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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