The Merger Wave
One (perhaps unintended) result of healthcare reform has been an explosion of hospital mergers. In an effort to enhance care delivery efficiency and save costs, systems are merging. The American Hospital Association reported 457 hospital mergers between 2010 and 2014. In 2015, activity increased by 18% over 2014.
Consolidation is a strategy used by an organization to achieve its goals – but is it effective? Across all industries, despite high hopes by both parties, it’s not uncommon for neither to ultimately be thrilled with the outcome. By some estimates, more than 70% of mergers and acquisitions fail to achieve their strategic and financial objectives.
Is it a Good Thing?
Government agencies and various organizations have been increasingly concerned that hospital consolidation will result in lower quality of care as well as increased prices and reduced competition which is in direct conflict with the central goals of most healthcare reform efforts. The American Hospital Association is touting data which indicates that these mergers are good for patients. The Deloitte Center for Health Solutions and Healthcare Financial Management Association points out that:
Nearly 80% of the acquiring organizations made significant capital investments in the acquired facilities soon after the transaction.
Nearly 40% used the capital to upgrade or implement clinical information systems, the top-reported use of capital.
More than half of the financial executives surveyed said at least one aspect of care quality improved after an acquisition.
According to an AHA-commissioned study last year by Charles River Associates, hospital mergers between 2009 and 2014 reduced annual operating expenses at acquired hospitals by 2.5%, equating to $5.8 million, and are driving quality improvements and upgrades to the facilities and services.
Not everyone agrees. See the Brookings Institute testimony by Paul B. Ginsberg, Healthcare Market Consolidations: Impact on Costs, Quality and Access. Hospital M&A activity slowed in 2016 – potentially because of Federal Trade Commission concerns about the impact on competition, cost, and quality.
Impact on the HR Team
Regardless of your position on whether consolidation is good or not, it’s the reality of the situation. What does all of this activity mean for the talent team?
We know more than a few senior level HR leaders who found themselves out of a job this past year. Consolidation left them without a role. Employees of both organizations often experience angst about an uncertain future.
Post-merger re-organization/operational challenges
Consolidating HR and talent operations is not easy. It can be time consuming and painful, and take precious resources away from the day-to-day tasks of recruiting, hiring, and developing talent. It’s more important than ever to ensure that your processes and tools are efficient and effective.
Post-merger culture assimilation efforts
Especially for non-profit hospitals, a merger with another system is not just an operational challenge. Communities have special sense of ownership over their hospitals. Hospitals value their mission to serve the community. Often these organizations value their strong, unique culture, have been around for decades, and are run by community leaders.
With this in mind, communication becomes paramount and HR often is tasked with a big part of that communication.
A Communication Plan
In 2016, The Society for Human Resource Management published a toolkit on Managing Human Resources in Mergers and Acquisitions. It highlights the components of a successful communication program:
Establish multiple routes of communication (e.g., one-on-one meetings, group sessions, newsletters, intranet updates).
Focus on the themes of change and progress by highlighting projects that are going well and action items that are being delivered on time.
Repeat the common themes of the M&A to increase employee understanding of the rationale behind the transaction.
Provide opportunities for employee involvement and feedback.
Ensure that employees understand there will be problems, but give a commitment that the problems will be identified and addressed as early as possible.
Getting a new leadership team on-board – One Example:
One of our larger health system clients acquired a much smaller system. The larger system has a unique and entrenched culture. It’s a big part of who they are. The culture is built into their hiring system at every level with our evidence-based hiring strategies. This includes senior leaders who are selected for their roles using our executive assessment process. This same process provides a rich database of information on individuals and teams that drive developmental efforts.
As part of integrating the leadership team of the smaller system, we conducted a cultural assimilation workshop. This included a presentation of the larger system’s culture to the new team while also communicating respect for and value of the history and culture of the acquired group. A facilitated discussion explored the similarities and potential differences in the respective cultures.
Each member of the new team went through our behavioral assessment, Select Assessment for Healthcare Leaders. We reviewed the competencies measured and how someone’s performance in any particular area might manifest itself during the coming months of transition. We then looked at group strengths and weaknesses to predict where the group might struggle.
An example: The group, as a whole, scored low on Positive Impact, the natural ability to deliver positive, optimistic messages in challenging times. Leaders can certainly be successful if this is not a strength, but when the whole group scores low, there is a reasonable concern about communication of difficult messages. With this knowledge, the group can take steps to carefully consider how messages will be perceived and carefully craft messages and stay on point, leaving nothing to chance.
This is just one example of how important people are to a successful merger. Particularly in healthcare, the merger is less about buildings and systems and more about people – leaders who establish and maintain the culture, physicians who need to be bought into the mission of the organization, and front line staff who live that culture every day when they interact with patients and families.
To learn more about the impact of culture on key business metrics, see: