Two of the biggest movers and shakers in the Illinois hospital market are aiming to form the state’s largest health system — serving some 3 million patients a year — and the 11th largest nonprofit system in the nation. Success for the new entity may hinge on how well the organizations can blend their cultures and approaches to clinical integration.
As explored in our July cover story, mergers and acquisitions continue gaining momentum in the hospital field, as CEOs seek partners to spread their reach and pursue population health. In these mega deals, it’s easy to get bogged down by the facts and figures; yet, it’s the less-tangible beliefs, customs and ways of thinking that are the true secret ingredients to their success.
In the case of the proposed 16-hospital Advocate NorthShore Health Partners, announced Friday, there are some cultural disparities. Twelve-hospital Advocate Health Care, based in western Chicago suburb Downers Grove, has emphasized integrating with independent physician practices out in the community. Meanwhile, four-hospital NorthShore University Health System, in north suburban Evanston, has aggressively acquired physician practices in recent years. Advocate is bigger and spread around a much larger geography mainly on the south and west sides of Chicago and its neighborhing suburbs, while NorthShore is concentrated exclusively north of the city, along the shores of Lake Michigan.
"Culturally, there are differences in terms of our size and approach to physician management. But, the good news is that we share the same combined vision, which is to be the best integrated health system in the state of Illinois," Mark Neaman, president and CEO of NorthShore, told me by phone Friday. "You need both methodologies to succeed in today’s environment, and we plan to push both our independent and employed physician approaches together to provide a new model of health care delivery."
Jordan Shields, vice president of Chicago-based consulting firm Juniper Advisory, and an expert in hospital mergers and acquisitions, believes the deal makes a lot of sense. Advocate, with its sweep and presence, adds a geographical area that isn’t in its current cadre, while NorthShore, with its "excellent balance sheet," gains size to spread its reach.
Shields believes the combined ANHP will spell success, but the partnership will prove "unbelievably successful" if leaders can clinically integrate the two physician models into one. As we explored in our June feature story, representational governance and leadership often can lead to disaster post-merger, with old CEOs and board members sparring with each other trying to preserve the old ways. "Representational governance is probably the worst form of governance," John Combes, M.D., president and COO of the American Hospital Association’s Center for Healthcare Governance told us earlier this year. "You don’t want people advocating or representing the two old organizations."
But that doesn’t appear to be the case with Advocate and NorthShore, as they’re taking the consolidation approach to merging — combining balance sheets, forming a single board of directors, and unifying mission and vision. Neaman and Advocate chief Jim Skogsbergh will serve as co-CEOs, until Neaman steps aside in two years, with the latter assuming full leadership.
Shields said ANHP appears to be doing all the right things at the corporate level.
"Consolidation, where you rip up the governance and start fresh, has an unusually successful track record," he said, pointing to Banner Health and Sentara Healthcare as examples. "The opposite is you keep NorthShore sitting on the outside, and you end up fighting over each little project where you invest capital. It is as integrated a merger model as you can have, and it can help relieve some of the initial tension and stress in these deals."
Hurdles still remain, as the two partners still need to gain regulatory approval from the Federal Trade Commission, State of Illinois and United Church of Christ. But Neaman expressed confidence that they’ll pass those tests, with a goal of closing in early 2015. "Our two organizations are both strong, and we have the luxury of time on our side," he said. But first, "It is important to get the culture right."