Both Detroit Medical Center and Henry Ford Health System have been on an acquisition fast track in recent years, roping in community hospitals at a dizzying rate. But when the two giants began talking about coming together this fall -- their second merger attempt in six years -- the deal failed to get beyond the initial discussion stage.
Meanwhile, in Indiana, Clarian Health, a $1.1 billion system created on January 1, 1997, by the merger of 941-bed Methodist Hospital and 600-bed Indiana University Medical Center, faces formidable obstacles barely a year into the relationship.
In both cases, physician-relation issues have been at the root of the problems. To varying degrees, power struggles, culture clashes and, often, the economics of physician compensation are at issue. The two cases illustrate what hospitals and health systems across the country are finding out: It's often easier to merge facilities than to bring together physicians, especially if they've traditionally been competitors.
Vinod Sahney, senior vice president of planning and strategic development for Henry Ford Health System, contends that physician issues were not the sole reason the deal with DMC didn't move forward. "It was a merger-of-equals issue," he says. "There's a difference between most mergers and this kind of arrangement, which must benefit each party equally."
Still, Sahney acknowledges that the systems -- each with about $1.5 billion in annual revenue -- anticipated some measure of physician opposition, largely because of differing cultures. Henry Ford has 1,000 salaried doctors while DMC's 3,000 physicians are mostly independent or in small medical groups. "We have a large medical group, and some of the doctors were worrying, 'will they (DMC) fire us?' " Sahney says.
Doug Klegon, vice president of planning and marketing at Detroit Medical Center, affiliated with Wayne University School of Medicine, agrees that if the merger had proceeded, physician issues -- leadership, traditional referral patterns and plain old competition -- would have emerged.
"Traditionally, our medical staffs have competed, and our medical staff wanted to know that by virtue of being part of the university that will grow their practice," Klegon says, an outcome that couldn't have been assured if the two systems merged.
What Henry Ford and DMC opted for instead was more program collaboration. For now, they are able to avoid the minefields involved in determining who gets juicy department-head plum positions and deciding how research dollars are allocated.
Still, the two organizations haven't given up on the idea of a merger."We will try again in a few years," Sahney predicts.
At Clarian in Indianapolis, executives are trying to quell the furor that erupted when the hospitals moved from the logistics of merging facilities to the more difficult issue of combining medical staffs -- Methodist's 1,300 physicians, mostly in private practice, and Indiana University's 700 physicians, who subsidize research programs with a portion of their income.
Methodist physicians are worried that they, too, will be "taxed" under the new system, while the university doctors are concerned that both their research time and their patient base, already declining because of managed care, will be further diminished if the two medical staffs are forced to collaborate.
To add to the strife, Clarian is attempting to institute a controversial joint credentialing process, resolving issues related to the varying levels of stringency and leniency in the two processes currently in place. Such issues have an impact on who's qualified to practice at the merged organization.
"The issues are those you would expect -- animosities and putting traditional competitors into the same team," says Evan Farmer, M.D., chair of the IU School of Medicine Faculty Practice Plan.
In recent local media coverage of Clarian's problems, some physicians, including Methodist oncologist William Dugan, M.D., have questioned the ultimate viability of the venture. Others, such as Farmer, are more hopeful. "I'm an optimist. If you're a pessimist, it never works," he says. "We've increased communication, and we're getting doctors together in the same room and talking, talking. I don't see the current obstacles as insurmountable."
Trying to merge hospitals or health systems whose physicians have different employment models or cultures adds an extra layer of difficulty, but the deal-breakers tend to be ego clashes and power struggles, often ignited by poor communication between hospital CEOs and physicians.
Rod Aymond, a consultant who has worked on more than three dozen hospital mergers, knows what doesn't work. "Closed-door arrangements -- when the doctors aren't included in a genuine way -- or are included as a facade," says Aymond, managing director of The Gainsborough Group, a San Ramon, Calif., consulting firm. In the most tactically faulty scenarios, Aymond says, merger committees bring in doctors, but the actual decisions are made behind the scenes, without physician involvement.
"Historically, the issues we have struggled with in mergers are leadership -- who participates in the planning process -- and determining the survivability of clinical programs. Anything that changes historical practice patterns and the way doctors make their living is threatening," Aymond says.
What does work, Aymond maintains, is open communication and fairness. "The deals that go smoothly are those where there's true enhancement of the role of physicians in the decisionmaking process. Often it's the control issue that ends up being the deal-breaker. Some CEOs still think they can control doctors."
Authority issues also have ramifications for academic institutions. Last month, New York University Medical School was forced to delay a controversial vote on whether to merge with the Mount Sinai Medical School after physicians on the NYU faculty filed suit against the plan in state court.
The group's lawyers say they want to force the NYU Board of Trustees to consult with the 900-member faculty before a merger takes place. The board, on the other hand, says the merger does not require discussion with faculty representatives.
Kenneth Ackerman, vice president of the Washington-based firm McManis Associates, believes that whether hospitals are merging or just trying to create a physician-hospital organization, the big problems occur when hospitals try to impose their infrastructure on physician practice patterns.
"Hospital executives don't understand the physician business and try to use the hospital infrastructure -- built to serve the hospital -- to support physician practices," Ackerman says. "It just doesn't work. There are a ton of disasters out there, because hospital executives tend to treat physician practices like any other hospital product."
He points to the dismal statistics on PHO failures: In the past five years U.S. hospitals have purchased more than 5,000 physician practices, yet only 8% of those ventures have succeeded, according to the most recent data he's seen.
"That's why physician practice-management companies are becoming so successful as an alternative," he adds.
Like Aymond, Ackerman believes the deals that work are successful because leadership and governance issues are handled properly, and power is balanced.
"In the deals that work, doctors have some control in governance -- beyond seats on the board -- and the incentives are aligned. Hospital executives must be willing to share power . . . and to give up some, too," he says.
Another key ingredient in creating a successful merger is addressing physician issues early in the process, Ackerman says. He cites the recent merger of St. Mary's and Park Ridge hospitals in Rochester, N.Y., which joined forces last spring to create Unity Health System. The merger involves combining the hospitals, which has already been completed, and joining the hospitals' two employed medical groups, about 150 doctors in all, in a PHO. The latter effort is on track for completion early in 1998.
Stewart Putnam, president of St. Mary's Hospital and chief operating officer of Unity, believes the effort has proceeded smoothly because executives at both hospitals involved physicians from the start. "Both hospital administrations built a strong case for change, and by the time we announced the (memorandum of understanding) we already had assembled forces from the medical staffs to help (us) understand the implications of the merger and to assist with implementation. What we did was involve physician leaders, formally and informally, to create a cadre of advocates."
Physician involvement took the form of specific, formal task forces charged with addressing key issues, such as excess bed capacity, as well as forming committees -- largely physician driven -- in several specialty areas.
The strategy worked, Putnam says. "Physician relations are actually better than in other staff areas affected by the affiliation. The real problems have been in management consolidations."
John Bank, M.D., senior vice president for physician services at St. Mary's, attributes the relatively trouble-free proceedings to good relationships between physicians and the hospitals' CEOs, and to the aggressive timetable set for the merger. "We involved the doctors early on, and we moved quickly," Bank says, adding that both strategies have kept physician anxiety to a minimum.
San Francisco-based Catholic Healthcare West has survived its merger mania -- growing from 15 hospitals to 37 in just three years -- unscathed by steadfastly refraining from trying to control physicians, says Kevin Fickenscher, M.D., senior vice president and chief medical officer. "Controlling physicians is a hallmark of failure. There's no cookie-cutter approach."
CHW's strategy has been to leave what works alone, Fickenscher says, which means that hospital-physician relationships and models vary widely throughout the system. Ultimately, CHW would like to move to a "unified strategy" that would involve developing a separate, equity-model physician organization.
Between 2,500 and 3,000 physicians are affiliated with the system, the majority of whom work on contract.
"We are involved in a lot of discussions with the physicians, and what we're hearing is that doctors are hungry for an alternative to PPMs," he says.
Aymond offers some final advice to hospitals eyeing mergers. "Don't tell physicians that bigger is better and that integration is a must. It won't fly," he says. "There has to be a reasonableness test from the physician perspective: How will the merger affect delivery of care and the lives of the doctors who deliver that care?"
Bonnie Darves is a freelance writer and editor based in Lake Oswego, Ore.