Framing the issue
• Mergers and acquisitions are likely only going pick up in pace, as hospitals look for partners to pursue population health management and meet other mandates of a transformed health care system.
• Leaders must place a special emphasis on blending the cultures of the two institutions that are coming together, or risk failure.
• Communicating earnestly and frequently to all employees, board members and medical staff and even the public is critical, to help stay ahead of the rumor mill.
• Trustees must decide early on not just what they hope to gain from a merger, but also what they’re willing to give up.
It was a matter of weeks before New Haven, Conn.’s two hospitals — separated by a few short blocks — were to come together to form a single organization. Leaders from both facilities rotated from table to table like speed daters, imagining everything that could go wrong when Yale-New Haven Hospital, an academic medical center, tied the knot with small, financially troubled Hospital of Saint Raphael.
A thousand things had to happen after Sept. 11, 2012, when the organizations’ chief executive officers officially inked the deal — including discharging and readmitting all 1,500 patients. Meanwhile, rumors flew among the Catholic hospital’s employees that the nonsecular Yale-New Haven wouldn’t celebrate Christmas or other religious holidays, and that its promise to avoid layoffs was a farce.
“This was a failing hospital,” says Richard D’Aquila, president and chief operating officer of Saint Raphael. “It had been suffering for years. Cutbacks, no raises, none of that stuff.
”Yale-New Haven leaders set up a 24/7 command center to answer any questions that arose on Day 1 of the acquisition, and it had every intention of keeping the center open until every concern was addressed and every nerve was calmed.
That proved unnecessary. Thanks to the leadership’s up-front emphasis on communication and culture, the center shut down in less than a day, says D’Aquila. “I didn’t want any missteps in front of employees. I wanted them to see right from the start that we had thought this out.
”He meant it. “That first payroll, if I’d had to write those checks myself, those checks would have been right,” D’Aquila says. “Because, once you lose their confidence, you’ll never get it back.”
Building — and maintaining — that level of staff confidence is vital for any organization’s pursuing a merger or other form of partnership. The frenetic pace of change in the field doesn’t diminish the need for due diligence and ensuring that cultures blend. Today’s intense focus on improving quality and reining in expenses demands that boards, executives, clinicians and other staff share the same vision.
The pace of mergers, acquisitions and other forms of affiliation is picking up, driven by the need to share best practices, embrace population health management and create a more efficient care delivery system. But finding a partner that’s a good strategic fit is only the first step. The next is making sure cultures mesh — that two C-suites, two boards, two clinical staffs and two support staffs all align on everything from mission and vision to workplace relationships and routines.
Many experts insist that culture, not financial considerations, should be the No. 1 driver in selecting a partner.
You can’t afford to be shy
“We’ve seen a number of situations where the strategic merit [of an integration] is high, the financial benefits are tangible and the operating requirements are not a deal breaker,” says Anu Singh, senior vice president of mergers and acquisitions at consulting firm Kaufman Hall. “But if you can’t get the people from across the organizations to adopt the point of view that this is what we want to do, this is how we’re going to do it, then you have the potential for cultural issues to keep you from realizing the benefits of a transaction.”
Rockford (Ill.) Health System recently called off a merger with one health system, but Gary Kaatz, president and CEO, says the organization remains on the lookout for a partner to help tackle the population health imperative. “Culture is everything,” he says. “If you have two organizations that have a really strong cultural fit, I think everything else will fall into place over time.”
Sometimes, getting a true picture of another organization’s culture is a challenge. Some may be so eager — or desperate — for a partner, they’re reluctant to reveal too much of themselves. That’s unacceptable, experts say: Either force them to become more forthcoming or walk away before signing any deal.
Kaatz advises going to the other site to get a close-up look. Learn not only how that organization approaches patient care, but also critical nonclinical factors, such as how long board terms last, how meetings are structured and how the organization treats employees.
Alan Zuckerman, president of Health Strategies & Solutions Inc., acknowledges that some hospital leaders avoid cultural aspects of a deal because they’re less tangible and harder to measure. That’s a formula for failure, he says.
Zuckerman advises hospitals to perform an up-front cultural assessment of themselves and potential partners to gauge their compatibility [see sidebar, Page 51]. For example, CEOs and their boards should find out early whether one side is highly democratic and the other is hierarchical in its leadership.
Too soft? Too squishy? Too bad. “You’re paid to be a leader,” Zuckerman says. “It’s not all science. It’s part of your job.”
Compromises are inevitable
It’s “ludicrous” for anyone to assume that the two cultures will come together without some concessions on both sides, says health care governance expert Jamie Orlikoff. He urges hospital boards and executives to consider carefully not only what they hope to gain from a partnership, but also what they’re willing to give up. Will you commit to a merger or acquisition if it means bidding good-bye to your CEO, shutting down your facility or losing your seat at the table [see Executive Corner, Page 52]?
Trustees, too, must be open to compromise. “The first question boards need to ask is, ‘How are we going to have to change, not just our governance structures, but our governance cultures, and where does the authority rest?’ “ Orlikoff says. “The more things don’t change, the more you’re almost ensuring that the merger will not work.”
Some leaders have worked hard to nurture a culture they adamantly believe in. For Bob Page, president and CEO of the University of Kansas Hospital in Kansas City, compromising on culture is nonnegotiable. The 600-bed independent academic medical center has spent the last 16 years bolstering its reputation and quality of care, investing some $1 billion in the organization, and bumping its patient satisfaction scores up from some of the worst in the country to near the top.
As it explores its role in population health and new ways to raise capital so it can expand facilities, UKH is on the lookout for partners, and already has held several conversations.
Page says he can tell fairly quickly whether the two organizations would make a successful fit.
“I don’t think it’s as hard as people think it is. If you sit down with C-suite members from other organizations, it takes probably 10 to 15 minutes to truly figure out what the priorities are of the other organization. We have literally walked away from the table after about a half-hour with potential partners, because it’s quick and easy to determine that it’s really not about the patient, it’s about other factors that are not consistent with our culture.”
Let the dance begin
Marquette (Mich.) General Hospital leaders set out to find a larger partner a few years ago. After scouring the country over several months and eyeing more than a dozen candidates, some of which made more generous financial offers, Marquette settled on Duke LifePoint because of its culture and focus on quality of care. The acquisition closed in September 2012.
“Once you get into the culture of what Duke LifePoint is really about, you start asking yourself, ‘Is this going to be a home run?’ ” says Marquette’s now-retired CEO Gary Muller. “Well, we think it’s been a grand slam once the cultures started to merge, and I think it starts at the top with Duke’s leadership.”
Duke LifePoint — itself a joint venture between nonprofit Duke University Health System and for-profit LifePoint Hospitals — has been on a buying splurge of late. It announced in March plans to acquire three-hospital Conemaugh Health System in Pennsylvania, as well as a joint venture with Wilson Medical Center in North Carolina. In June, it bought an 80 percent stake in Rutherford Regional Health System in North Carolina. It reportedly has partnerships pending that would add six more hospitals to the six it already owns.
After a letter of intent is signed, Duke LifePoint sets about getting to know the employees and leadership at the partner hospital. William Carpenter III, chairman and CEO of LifePoint Hospitals, says its critical for leaders to become thoroughly familiar with the partner organization during this period, identifying risks and opportunities, and getting a sense of its leadership culture.
Understandably, employees are anxious at the start, and it’s important to allay their fears. “We spend an awful lot of time making sure that we answer their questions because, until people are able to get over how this affects them personally, it’s hard for them to be completely focused on their jobs, and their jobs are critically important,” Carpenter says.
David Jarrard, president and CEO of health care public relations firm Jarrard Phillips Cate & Hancock, encourages partnering organizations to create a joint website to serve as an authoritative place to answer employees’ questions and get ahead of rumors that can deflate morale. “When someone goes through change, message inconsistency at the rumor mill can be like a spark on kindling,” he says.
There’s an emotional side to an integration of two organizations that hospital leaders can’t ignore. “People are born and die and miracles occur in these places every day, and it happens right before the eyes of the employees and physicians,” Jarrard says. “There’s an emotional connection that we have to consider seriously as we think about a partnership.”
Deal’s done. Now what?
Once the deal officially closes, the real work of blending cultures begins.
When it comes to the board, experts strongly counsel against representational governance that’s based on assets, or is a 50-50 split between the two sides. Trustees sometimes can try to preserve the old institution’s culture, rather than look at what’s best for the new organization, says John Combes, M.D., president and COO of the American Hospital Association’s Center for Healthcare Governance. Rather, board members should be chosen based on the competencies and skills needed by the new entity. Any representational board leadership should be transitional, lasting only a year or two at most.
“You need to quickly move away from that because representational governance is probably the worst form of governance,” Combes says. “You don’t want people advocating or representing the two old organizations.”
As for picking a leader at the newly combined organization, some experts advocate for an internal candidate, rather than an outsider, at least temporarily. Cliff Robertson, M.D., who was COO of Catholic Health Initiatives’ Franciscan Health System in Tacoma, Wash., served as interim CEO when CHI acquired St. Luke’s Health System in Houston. That helped the new organization and its leadership to understand the culture of CHI, he says.
New partners should look at each other’s calendars, and understand how meetings are scheduled and conducted, who attends and who really makes decisions, says Robertson, who is now CEO and senior vice president of CHI’s Nebraska-based regional health network.
Governance expert Orlikoff says it’s also critically important to make sure physicians’ cultures come together in a compatible way. The joint medical staff should develop new, common protocols and bylaws, rather than simply continue as if nothing has changed at their individual hospitals.
“As obvious as it sounds, you’d be amazed at the number of organizations that don’t do that until four or five years post-merger,” he says. “As tricky as merging governance structures is — and it’s very hard — the clinical stuff is harder because most organizations have not assessed their clinical cultures and have not done any work in developing them.”
A key first step to aligning physician cultures is making sure that all doctors are speaking the same language and using the same terms. Measure the quality indicators that matter most to the aligned organization and find areas where there is variation, says Thomas Lee, M.D., chief medical officer with Press Ganey and a practicing primary care physician with Brigham and Women’s Hospital in Boston. Be wary, too, of doctors who use culture as an excuse to rationalize poor performance or to slow down the pace of change, he adds.
Focus on the one commonality that every hospital or health system should have, which is bettering care for patients, and separate physician cultures should start to align, says Lee, who also served as network president for Partners Healthcare System in Massachusetts, during several acquisitions.
“You have to shine the light on what’s happening for patients, and then you turn back to ‘Here’s what it means for the cardiologist working in our group,’ and so on,” he says. “It’s avoiding getting stuck in the situation where you’re paralyzed because everyone is defending his turf against any kind of threat to it. We believe the way to avoid that is by changing the topic, and saying, ‘We’re trying to do something noble and great for patients.’”
When Baylor Health Care System in Dallas and Scott & White Healthcare, in Temple, Texas, merged last fall, leaders made a point of engaging physicians in the process early on. They view the newly formed entity — an $8.3 billion, 43-hospital system — as a clinical enterprise that’s focused on population health management, says Joel Allison, former CEO of Baylor and now CEO of the combined Baylor Scott & White Health.
“The strategic focus is that we want to be seen as one. We’re not two entities,” he says. “We are truly becoming one, and so our strategy will be geared around that.”
From sinking to soaring
Baylor Scott & White has only been at it since Oct. 1, but the process of integrating cultures will go on indefinitely, with some areas blending quickly while others will take years.
Back in Connecticut, D’Aquila says Yale-New Haven Hospital is still working to integrate staffs years after the merger with Hospital of Saint Raphael became official. But upcoming projects, like a state-of-the-art musculoskeletal treatment center on the Saint Raphael campus that will attract top talent from around the nation, is giving staff reason to cheer the deal.
“It’ll be unlike anything else in the country,” D’Aquila says. “This was a failing hospital. It had been suffering for years. Cutbacks, no raises, none of that stuff. And now, to have these kinds of investments made in it and to give something for employees and physicians to grab onto enormously speeds up the healing process and the sense of purpose.”
Executive Corner
Health care governance expert Jamie Orlikoff says hospital boards and leaders should consider seven questions when deciding whether to partner with another organization.
1 | Why are we doing this merger? What are the three or four specific and compelling reasons that we are seeking a partner or we believe we have to merge?
2 | Now that we know what we hope to gain from a merger, what are we willing to give up and, equally important, what are we not willing to give up? For example:
• Who will be the CEO? Must it be our current CEO?
• Does our board need to continue to exist?
• Will we insist on a majority membership on the new board?
• What are the deal breakers at the governance level?
3 | What is our culture as a board? What are our unique structures and processes? Do we have a large number of ex-officio members while our partner does not? Do we believe in constituency representation and our partner believes in competency-based board composition? Overall, how would we describe our governance model? How invested are we in maintaining that model?
4 | In our governance model, how many of the things that we do are best practices? What do we think really works and are passionate about maintaining post-merger? Conversely, how many components of our governance model do we do simply because we’ve always done it that way and we’d be willing to sacrifice?
5 | How do we make decisions? Do we have different processes for making decisions of different magnitudes? Do we have a culture of unanimity? Do we have a decision-sequencing culture in which we try to never make big decisions at the same meeting where the issue is first presented? What’s our culture of debate? Is it a culture of dissent, where we encourage respectful dissent? Do we ram decisions through? How does this compare to our potential partner’s governance decision-making culture?
6 | What’s the dynamic of the relationship between our board and the CEO? That’s where your board really needs to get into a lot of soul-searching about all of the aspects of that crucial relationship, which many boards and CEOs don’t want to talk about. Does the board lead the CEO or is it the other way around? Is the CEO the strategic partner of the board, or is it fundamentally an employee-employer relationship? How much of the relationship is based on policy and process, and how much of it is based on personality? Is it a deal breaker if your CEO is not the CEO of the new entity? Then you can ask your partners about its board relationship with its CEO, and make a meaningful comparison.
7 | Compare overall governance, leadership and operational practices. Be willing to acknowledge that the potential partner does something better than you do. Then, determine if the merger will be:
• One culture dominating the other, which implies an acquisition model; or,
• A merger of equals, but in which both boards recognize that one’s practices are uniformly better than the other’s and both agree to adopt that governance model; or,
• A hybrid model, in which we create a new, blended model of governance based on a systematic comparison of how each side does things and on recognized governance best practices.
