Vetting a Partnership: When to Consider a Merger or Acquisition
Health care reform has catalyzed providers—especially independent hospitals—to consider the business models and structures within which they will operate going forward. As such, many will contemplate mergers or acquisitions, but there is much to consider before pursuing such a path.
Alan Zuckerman, FACHE, FAAHC, is president of Health Strategies & Solutions, Inc, Philadelphia. Moderating “Mergers and Acquisitions: Positioning Your Organization for the Post Reform Environment,” a three-part panel discussion held this past March at the 2012 Congress on Healthcare Leadership in Chicago, Zuckerman says many strong organizations are taking a more aggressive stance in the market.
In kicking off the first portion of the discussion (the second and third segments will be covered in a subsequent issue of Health CXO), Zuckerman notes that these stronger entities are no longer waiting for the weak to initiate the discussion. Instead, they have begun to proactively seek out and pursue growth opportunities in local markets, across state boundaries, and even nationally.
In light of such factors as federal health care reform, the effect of state budget deficits on health care funding, capital market restraints, and a growing trend among physicians to eschew private practice for salaried employment, many independent hospitals likely will need to cede their independence.
“Our view is that only independents that have overwhelming strengths across all segments of their business will likely be able to remain independent,” Zuckerman states.
The very first question to be weighed when deciding whether to consolidate or join others to create something larger should be the goal best fulfilled through a move of this kind, points out Leo Brideau, FACHE, president and CEO, Ascension Health Care Network (St. Louis, Missouri), a joint venture between Ascension Health and Oak Hill Capital Partners (Oak Hill Capital) to provide an alternate funding source for the acquisition of Catholic hospitals and other health care provider entities.
“One of the things I see so often is that the boards of directors, and CEOs, and leaders of health care centers and health systems, really haven’t taken the time to step out and say, ‘Given the times, given what we’re facing with health care reform going forward, what is the goal we can best fulfill with this move?’ You need clarity about your role in the community.”
Brideau cautions that raising capital here is not enough; if a consolidation or larger joint venture is to succeed, there needs to be a support infrastructure and physician alignment strategy—which will require more capital. With greater size comes greater complexity.
Choosing Good Partners
He also counsels health care entities to choose partners with an interest in serving the community, not the entity itself. “Know that ‘partnership’ is code for ‘the hospital wants to control the doctor,’ but it doesn’t work,” he says. “You’ve got to give up the control, because if it’s not a real partnership, smart physicians are going to go somewhere where [the administration] will work with them. Partnership needs to be a real word.”
Ann Madden Rice, FACHE, CEO, UC Davis Medical Center, California, agrees with Brideau that physician sensitivities merit consideration in assessing the viability of a consolidation. Rice, whose institution is currently working on building relationships with community hospitals, a system of cancer care sites, and a larger primary care network to interface with its medical center, strongly suggests that organizations seek to avoid becoming so mired in partnership issues that physicians begin to feel alienated and taken for granted.
To size up a prospective partner, assess how their handling of certain procedures/issues will impact the brand and reputation of the other institution. Plans for managing these effects should be formulated prior to finalizing any merger, to ensure that all parties are on the same page, she advises.
There also is a cost in pursuing a consolidation opportunity or opportunities, Rice counsels. “The time you spend in dialogue may mean you’re not building your own business, insurance products, physicians, etc.,” she says. “There are a lot of moving parts, but you can’t ignore the fact that you’re running a business.”
Annexing a Community
While many of the considerations outlined by Zuckerman, Brideau, and Rice pertain to all hospitals, consolidation initiatives that involve rural hospitals are a somewhat “different animal,” observes Dolan Dalpoas, FACHE, CEO of Abraham Lincoln Memorial Hospital, Lincoln, Illinois.
The critical access hospital is part of the Memorial Health System, Springfield, Illinois. Two hospital affiliates are Memorial Medical Center, Springfield, an acute care facility affiliated with the Southern University School of Medicine; and Taylorville Memorial Hospital, Illinois, a critical access community hospital serving patients residing in and around Christian County.
“Small rural hospitals are a different animal probably because of the population they serve and the fact that they are the economic engine of the community,” Dalpoas asserts. “They are the largest employer in the town, city, or county. They have a very active auxiliary, a lot of strong core volunteers, community legends on their board, and a deep connection to the community and the patients they serve. So, when you talk about consolidation, you’re almost talking about consolidation of the entire community.”
Abraham Lincoln Memorial Hospital was a stand-alone, community-based hospital when, in the early 1990s, its leaders weighed the needs of and market forces in the community with the facility’s ability to fulfill these requirements. A sizeable gap between what the hospital could do internally to satisfy the identified needs, the resources it could produce to do so, and the needs themselves was uncovered.
“They could not figure out how to perpetuate the mission without going and finding a parent [entity],” Dalpoas explains. They had no choice but to approach Memorial Health System about stepping into that role; the affiliate relationship between Abraham Lincoln Memorial Hospital and Memorial Health System was formally executed in 1994.
Dalpoas believes this move has proven an overwhelmingly positive one in large part because the two institutions shared an identical commitment to patient-centered care, along with very similar strong values and missions. Their visions for the future were very alike.
The lesson here, he says: “If you’re a small rural hospital . . . cultural congruency should be given a lot of weight when you talk about affiliating with a larger health system.”Julie Ritzer Ross is a contributing writer for Health CXO.
Alan Zuckerman, FACHE, FAAHC, is president of Health Strategies & Solutions, Inc, Philadelphia. Moderating “Mergers and Acquisitions: Positioning Your Organization for the Post Reform Environment,” a three-part panel discussion held this past March at the 2012 Congress on Healthcare Leadership in Chicago, Zuckerman says many strong organizations are taking a more aggressive stance in the market.
In kicking off the first portion of the discussion (the second and third segments will be covered in a subsequent issue of Health CXO), Zuckerman notes that these stronger entities are no longer waiting for the weak to initiate the discussion. Instead, they have begun to proactively seek out and pursue growth opportunities in local markets, across state boundaries, and even nationally.
In light of such factors as federal health care reform, the effect of state budget deficits on health care funding, capital market restraints, and a growing trend among physicians to eschew private practice for salaried employment, many independent hospitals likely will need to cede their independence.
“Our view is that only independents that have overwhelming strengths across all segments of their business will likely be able to remain independent,” Zuckerman states.The very first question to be weighed when deciding whether to consolidate or join others to create something larger should be the goal best fulfilled through a move of this kind, points out Leo Brideau, FACHE, president and CEO, Ascension Health Care Network (St. Louis, Missouri), a joint venture between Ascension Health and Oak Hill Capital Partners (Oak Hill Capital) to provide an alternate funding source for the acquisition of Catholic hospitals and other health care provider entities.
“One of the things I see so often is that the boards of directors, and CEOs, and leaders of health care centers and health systems, really haven’t taken the time to step out and say, ‘Given the times, given what we’re facing with health care reform going forward, what is the goal we can best fulfill with this move?’ You need clarity about your role in the community.”
Brideau cautions that raising capital here is not enough; if a consolidation or larger joint venture is to succeed, there needs to be a support infrastructure and physician alignment strategy—which will require more capital. With greater size comes greater complexity.
Choosing Good Partners
He also counsels health care entities to choose partners with an interest in serving the community, not the entity itself. “Know that ‘partnership’ is code for ‘the hospital wants to control the doctor,’ but it doesn’t work,” he says. “You’ve got to give up the control, because if it’s not a real partnership, smart physicians are going to go somewhere where [the administration] will work with them. Partnership needs to be a real word.”Ann Madden Rice, FACHE, CEO, UC Davis Medical Center, California, agrees with Brideau that physician sensitivities merit consideration in assessing the viability of a consolidation. Rice, whose institution is currently working on building relationships with community hospitals, a system of cancer care sites, and a larger primary care network to interface with its medical center, strongly suggests that organizations seek to avoid becoming so mired in partnership issues that physicians begin to feel alienated and taken for granted.
To size up a prospective partner, assess how their handling of certain procedures/issues will impact the brand and reputation of the other institution. Plans for managing these effects should be formulated prior to finalizing any merger, to ensure that all parties are on the same page, she advises.
There also is a cost in pursuing a consolidation opportunity or opportunities, Rice counsels. “The time you spend in dialogue may mean you’re not building your own business, insurance products, physicians, etc.,” she says. “There are a lot of moving parts, but you can’t ignore the fact that you’re running a business.”
Annexing a Community
While many of the considerations outlined by Zuckerman, Brideau, and Rice pertain to all hospitals, consolidation initiatives that involve rural hospitals are a somewhat “different animal,” observes Dolan Dalpoas, FACHE, CEO of Abraham Lincoln Memorial Hospital, Lincoln, Illinois.
The critical access hospital is part of the Memorial Health System, Springfield, Illinois. Two hospital affiliates are Memorial Medical Center, Springfield, an acute care facility affiliated with the Southern University School of Medicine; and Taylorville Memorial Hospital, Illinois, a critical access community hospital serving patients residing in and around Christian County.
“Small rural hospitals are a different animal probably because of the population they serve and the fact that they are the economic engine of the community,” Dalpoas asserts. “They are the largest employer in the town, city, or county. They have a very active auxiliary, a lot of strong core volunteers, community legends on their board, and a deep connection to the community and the patients they serve. So, when you talk about consolidation, you’re almost talking about consolidation of the entire community.”
Abraham Lincoln Memorial Hospital was a stand-alone, community-based hospital when, in the early 1990s, its leaders weighed the needs of and market forces in the community with the facility’s ability to fulfill these requirements. A sizeable gap between what the hospital could do internally to satisfy the identified needs, the resources it could produce to do so, and the needs themselves was uncovered.
“They could not figure out how to perpetuate the mission without going and finding a parent [entity],” Dalpoas explains. They had no choice but to approach Memorial Health System about stepping into that role; the affiliate relationship between Abraham Lincoln Memorial Hospital and Memorial Health System was formally executed in 1994.
Dalpoas believes this move has proven an overwhelmingly positive one in large part because the two institutions shared an identical commitment to patient-centered care, along with very similar strong values and missions. Their visions for the future were very alike.
The lesson here, he says: “If you’re a small rural hospital . . . cultural congruency should be given a lot of weight when you talk about affiliating with a larger health system.”Julie Ritzer Ross is a contributing writer for Health CXO.