Breaking up may be hard to do, but hospitals can learn from the experience.
That's the word from J. Richard Gaintner, M.D., president and chief executive officer of Pathway Health Network, a five -hospital network based in Boston. "We got the ball to the five-yard line," Gaintner said of Pathway's proposed merger last year with New England Medical Center, also in Boston. Then, after six months of negotiating, talks ended in July.
The collapse of Pathway's merger with New England Medical Center was one of 16 deals that officially disintegrated in 1995 (See chart). Although hundreds of deals went through last year, those that didn't show some common s tumbling blocks for potential partners.
Looking back, Gaintner said merger partners should come to the negotiation table with similar preparation. He noted that while his system had molded a strategy with its board, executives and p hysicians, "I think (New England Medical Center) hadn't gone through that exercise." When it came to merging the institutions, that difference hurt, he said.
Gaintner also said merger partners that are familiar with each other sho uld take a hard look at the potential pitfalls. "Jerome Grossman (New England Medical's CEO) and I were good friends," Gaintner recalled. "But neither of us had entered into this type of big thing. My style is pretty open, and I sort of have the attitude we can work this out."
However, he said they should have identified potential roadblocks early on and planned how to deal with them. "You have to have a lot more of the cards face up in the beginning," he advised. (As a postscript to the proposed merger, Grossman announced his resignation from New England Medical two months after talks with Pathway ended.)
Size can be an obstacle, too. Gaintner said combining Pathway's flagship, Deaconess Hospital, with New England Medical would have been like merging giant automakers Ford and Chrysler. However, he said it was easier merging with a suburban hospital. Pathway completed a merger with 213-bed WalthamWeston Hospital and Medical Center, Waltham, Mass., last year.
Control is a central issue in most hospital merger deals. "It's a natural human phenomenon to want to control your own destiny," Gaintner said.
For example, in the list compiled by MODERN HEALTHCARE, governance and control issues were mentioned as a primary reason for three breakups.
Even when other issues were more visible, control was an underlying factor. For example, in the University of Missouri deal with Tenet Healthcare Corp., some university officials didn't want to cede control of the hospital to an investor-owned chain.
Tenet would have bought between 49% and 51% of the system. While that's only a matter of two percentage points, it's a world of difference when it affects who calls the shots.
In Helen Ellis Memorial Hospital's proposed deal with Columbia/HCA Healthcare Corp., the city of Tarpon Springs, Fla., didn't want to give up contr ol to the hospital's board.
"For every deal you hear about that has fallen apart, there are probably five others that should have happened but never did because they couldn't resolve the control problem," said Josh Nemzoff of Nemz off and Associates, a Nashville, Tenn.-based firm that specializes in mergers and acquisitions.
In many cases, partners don't want to talk about the failed deal's problems because they don't want to point fingers. That could sour fu ture relations.
Asked about the reasons behind the break-off of negotiations between Hillcrest HealthCare Corp. and Tulsa (Okla.) Regional Medical Center, Tulsa Regional spokesman Tom Campbell said specifics were "never articulated ." Tulsa Regional simultaneously broke off talks with Hillcrest and signed a deal with Columbia. The hospital saw a partnership with Columbia as "more advantageous," Campbell said.
And when asked whether the hospital's CEO would elaborate on why Columbia was chosen over Hillcrest, Campbell said, "I know he wouldn't. We have very close relations with Hillcrest."
If control is a sensitive subject, price often is even more so. Buyers and sellers frequently don't want to disclose price, so when a deal breaks off it's often hard to know if dollars were the prime factor in the demise.
Price was a factor in at least two deals that fractured in 1995: Atlanta's Georgia Baptist Med ical Center's proposed merger with Columbia, and Brim's with Paracelsus Healthcare Corp.
"Often the seller's expectations run away; they get out of whack with reality," said Michael O'Donnell, a vice president who specializes in m ergers in the Atlanta office of Price Waterhouse. If a buyer can't meet the seller's price, "you just never get over that initial gap between the seller's expectations and the market reality."
Even after some failed mergers, the p roposed partners end up working together anyway. That was true with Helen Ellis Memorial and Columbia. When the city wouldn't let the hospital's board engineer a sale to Columbia, the board signed a three-year contract to join Columbia's managed-care network.
However, in other cases, the breakup was less than amicable. When Holyoke (Mass.) Hospital cut loose from a merger with two other area hospitals, those hospitals sued (July 17, p. 4).