Transformation - Merger Integration

Unlock the Value of Healthcare System Integration

Don’t become just a holding company – create value.

The trends toward healthcare consolidation are likely to continue for some time, according to a recent report published by the Healthcare Financial Management Association.

These mergers, acquisitions, and affiliations sometimes result in greater value for consolidating entities. However, those that improve health outcomes, patient experience and the total cost of care remain all too rare. Some even have an overall negative effect on the combined system due to the introduction of additional complexity. Leadership’s disproportionate emphasis on customer acquisition is often at the root of the problem. A more holistic and results-focused approach to combinations could help healthcare systems make meaningful progress against Triple Aim objectives.

Before suggesting opportunities to improve its effectiveness, it is useful to reflect on some reasons why consolidation of health systems so often fails to capitalize on its full potential.

Myopic focus on revenue misses red flags

The desire for swift, bold action to expand the patient pool is understandable, particularly as providers continue to function with a heavy foot in the fee-for-service world. However, pursuing greater market share without carefully considering all the implications of network expansion often leads dealmakers to overlook significant risks. Is there capacity among stretched hospital staff to support integration management? Are the cultures of the organizations complementary enough to support effective collaboration? Will existing technology infrastructure—including EHR systems—support continuity of care in the expanded system?

Limited vision makes for limited opportunities

When a deal between healthcare providers is announced, leadership inevitably touts the comprehensive benefits to be achieved. Unfortunately, too many combinations fail to go beyond a high-level articulation of these potential advantages. Instead, due diligence and integration efforts focus on target company financials, desired cost synergies, and capture of new customers. Without a more expansive vision that lays out clear triple aim targets indicating how success will be measured, the full benefits of the joined systems will always be incomplete.

Fear of attrition and conflict

Retention of key personnel is critical to the success of any merger or acquisition.

Given combining healthcare systems’ disproportionate focus on acquiring patients, the retention of clinicians becomes especially important. As a result, leaders seek to reassure HCPs of their autonomy, promising that change they experience from the deal will be minimal. Pushing for greater cross-organizational alignment also impinges on the level of control administrators have over their domains. Most systems simply push off addressing these issues given their complexity, leaving questions unanswered and opportunities untapped.

Despite these challenges, there are a number of steps that healthcare system leaders can take to expand the value generated through integration and improve outcomes for the diverse stakeholders they serve.

Commit to expanded due diligence

When considering a deal, healthcare systems should perform due diligence that goes beyond traditional evaluation of assets and legal, financial, and regulatory health. By empowering a cross-functional team (including clinicians) to assess the strategic and cultural fit of a deal, leaders can develop the insights they need to make more informed decisions about risks and opportunities. This “expanded due diligence” may include analysis of a targeted system’s culture, the strengths and weaknesses of key functional areas and talent. The resulting insights help leaders assess cross-organizational compatibilities, refine their approach to integration, prioritize actions to maintain the stability of day-to-day operations and accelerate the financial, operational, and care-based benefits that the deal is expected to deliver.

Agree on a shared picture of the future state

Successful combinations in any industry start with a comprehensive vision – a detailed description of what the newly integrated organization will look like one to two years after close. In healthcare’s case, this vision (also referred to as a “merger intent”) must go beyond financial targets to include strategic, clinical, operational and organizational goals. Provider input is critical in the development of an effective vision. What outcomes do they agree to drive together? Where is there readiness to collaborate towards shared objectives and where is autonomy required?

When creating the merger intent, active participation of executives from both systems is imperative. In addition to getting input from both sides, it is important for key leaders to have the experience of meaningful collaboration. The two sets of leaders should align around a clear vision of success, establishing shared accountability on the most important issues to the combined system.

Initiate two-way dialogue

Whether a merger, alliance, or affiliation, communication is at the heart of any successful integration. Clarifying the vision and process for moving forward, and providing forums for dialogue along the way are critical for maintaining employee engagement and productivity through change. The merger intent can be used as the starting point for a communication campaign to gain broad support for the deal among large numbers of staff and other stakeholders. It is also useful in helping leaders to communicate with consistency externally. Although all stakeholders are important, special attention should be paid to engaging caregivers in an ongoing conversation.

Drive for results using 100-day initiatives

Engagement is also crucial when it comes to achieving the tangible results needed to deliver the combined system’s promise. Using the merger intent as the basis, leaders should charter cross-functional teams against the most important, high-payoff integration opportunities. These teams should be charged with the responsibility of attaining these goals, accomplishing results in 100-day cycles. As the integration work progresses, leaders should gain insights from the experience and periodically refine the direction. Engaging the caregivers closest to the work aligns with the principles of high reliability healthcare organizations, including sensitivity to operations and deference to expertise. Partnering on short-term performance sprints supports attainment of immediate business impact, speeds up the pace of cross-organizational understanding, and helps leaders identify and develop top talent in the new combined enterprise. 

Too many integrated delivery networks fall far short of actual integration. There is only the highest level of coordination between entities, leaving a tremendous amount of untapped potential. Without addressing this issue, continued consolidation will only create healthcare conglomerates that function as holding companies. Taking even small steps towards aligning on Triple Aim outcomes and engaging people from across the combined entity to achieve them could go a long way towards unlocking greater value for all involved.

From Becker’s Hospital Review