Over the past few years, hospitals and healthcare systems have been scrambling to align themselves with other provider organizations. Given the importance of becoming part of an integrated delivery system under healthcare reform, the number and scope of these collaborative efforts surely will escalate. To be successful, the leadership of these organizations would do well to learn from the lessons of failed efforts.
One doesn't have to look far for examples. Business publications are replete with stories about frustrated attempts to merge healthcare systems, hospitals, clinics and even associations.
The costs of failed efforts are enormous. Often, a deal falls through after months of negotiations, preparation of countless documents, and endless hours of speculation on the part of employees. All of this exacts a tremendous toll on productivity and morale, to say nothing of the financial burden on the entities contemplating the merger or venture.
While merger talks almost always begin with some degree of trepidation among everyone involved, they also include a strong commitment to making the whole stronger than the sum of its parts. Great care is taken to ensure that the strategic, legal, financial and bricks-and-mortar issues are painstakingly studied. Despite all the attention the proposed deals receive, antitrust and tax issues only occasionally kill a collaborative venture.
The "ego triangle."If that is the case,
then why do these carefully crafted plans fall apart? A common thread runs through some recent examples:
After nearly a year of negotiations, two medical centers considering a merger stop discussions. Why? Their boards are at odds over which chief executive officer will head the merged entity.
Two hospitals, one an allopathic facility and the other an osteopathic facility, are about to consummate a venture. Suddenly, the allopathic hospital asks for more time to consider the deal. The reason? In a special meeting of its medical staff, the physicians voted not to cooperate in the merger of the two staffs.
In a town where two hospitals have co-existed for many years, an attempt to consolidate the facilities nearly succeeds but then falls apart at the 11th hour. While few will admit it, the underlying reason is that the leadership of the larger facility can't accept the idea of such a close relationship with the hospital they have for so long considered second-rate.
What's the common thread? More often than not, it's the leadership of the organizations-the board, the CEO and the medical staff-that have caused or contributed most to the collapse.
So, we see that rather than antitrust or financial considerations, it is personalities and the social and political dynamics among the board, management and physicians that pose the biggest threat to a collaboration. No matter how well-conceived, a deal will disappear when it sails into the "ego triangle" if leadership issues have not been adequately addressed.
Veterans of the process know the importance of addressing technical matters, and even the difficult corporate culture issues, up front. But the ultimate deal-breaker is the ego factor-because it's the toughest to tackle and the easiest to rationalize away. A few considerations can keep the egos at bay.
CEO selection. Because it's rare to find a collaborative venture in which one CEO plans to step aside for the other, the decision on who will run the new organization is one of the most common barriers to completing a merger. The best answer to this critical question is to agree to a process of selection and evaluation but not make any decision on the new CEO until after the deal is final. At that point, CEO selection becomes the first priority of the new board.
Contract review. During the early planning stage, there are a number of steps that can be taken to ensure that the CEOs are treated fairly. First, the boards should review the contracts of the CEOs and make sure they have a fair severance package. Second, a carefully drafted letter of intent can provide for uninterrupted leadership during merger negotiations and the subsequent CEO selection process. For example, the letter might assure the CEOs that they will be considered for the top position or that the new leader will be chosen from among those in the CEO position at each of the involved entities. This can help make board members less inclined to lobby for "their" CEO for the wrong reasons, such as their well-being rather than what's best for the new entity.
Board representation. Early in the discussions, the issue of board member selection should be addressed. This often is one of those items that is uncomfortable to discuss and, therefore, is avoided until late in the process. Given the complexity of many of today's proposed integrated networks, the issue is far more complicated than simply deciding on the number and type of representatives from the merging organizations. Appointing a special committee to include representatives from each of the board executive committees is an excellent way to get these issues on the table early.
Medical staff participation. Today, more than ever before, physicians are recognized as critical players in a successful merger process. Early medical staff involvement and ongoing communications with physician leadership is essential. In some parts of the country, physicians are being urged by their colleagues and/or their local and state medical societies to maintain their independence in the face of increasing numbers of mergers and consolidations. As a result, there may be competition for the message of collaboration.
Decision points. Any well-designed process to achieve a successful collaborative venture will include "go/no-go" points. Use these stages of the process to review the critical leadership (ego) issues and make sure everyone is still on the same track. If they are not, perhaps the organizations or their leaders are not a good fit, and the plans need to be modified or abandoned.
Use of a facilitator. Managing the process that will lead to a successful collaborative arrangement is an art in itself. Rarely are negotiations successfully concluded without some external assistance. This is especially true concerning ego issues, first because they're the ones that cause personal discomfort for key players, and second, because the tendency is to review them with less intensity than technical issues.
It's important that all participants in the merger process keep the ultimate goal in mind-achieving greater strength through collaboration. Failure to reach agreement on "who will lead" does not automatically signal that the idea should not have been pursued. Rather, it just means personalities and ego may have gotten in the way of a good idea.