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5 M&A Tips from Finance Executives

July 07, 2014

The top lesson shared by four senior-level healthcare finance executives experienced in mergers and acquisitions: "You can work through most things, but if you can't work through the culture and mission issues, it's not going to work."

Consolidation continues to be the trend in healthcare as provider organizations look for merger, acquisition, and affiliation opportunities in order to provide better, more-efficient care and to prepare for the movement toward value-based reimbursements. However, successfully executing an M&A transaction is no small task, and failing to do it well can have enormous implications.

I recently moderated a roundtable discussion among four senior-level finance executives about what is involved in integrating two organizations, and they shared several lessons learned from their experiences.

1. Culture Trumps All Else

Even with all the operational and financial challenges that exist when working through an acquisition, nothing is more important than culture. Failing to blend the two organizations culturally is the surest way to failure, the executives say.

"Culture trumps financial benefit, efficiencies and everything else, and the process isn't done overnight," says Ted Dudley, executive vice president and CFO at Catholic Medical Center Healthcare System in Manchester, NH. "It really starts with just the cultural fit between administrations. Even if both administrations may not be the surviving administration, there has to be that sort of coming together in terms of why we're doing it and what's the benefit."

"You can work through most things, but if you can't work through the culture and mission issues, it's not going to work. Those points are critical," agrees Gary Akenberger, senior vice president finance at Toledo, OH-based ProMedica. "Also at the highest levels, from the executive leadership, as well as physician leadership, engaging with employees early on in the process and managing expectations is important."

Lynn Wiatrowski, executive vice president and national treasury executive, specialized industries at Bank of America Merrill Lynch in Boston, says it is vital to get beyond the "us versus them" mentality that inevitably exists at the start of an acquisition.

"It is honesty, transparency, and communication that bridge a culture," she says. "Some of the toughest decisions happen many months later or a year or two after because the way to get most of the savings from a merger is through staff integration, technology, or other synergies, which often mean reductions and changes that can create hugely negative perceptions. Communicating around those so people understand that the decisions will have the long-term benefit of leading to better access to care, and better cost of care, is critical. It's really important to keep that communication going."

2. Don't Lose Sight of Day-to-Day Operations

During an acquisition, it's easy for an organization to lose focus on daily operational goals, says Robert Glenning, executive vice president and CFO at Hackensack (NJ) University Medical Center.

"One concern is becoming too inwardly focused during a large transaction," he says, noting that HackensackUMC is looking at the possibility of creating two administrative groups, one to run the existing organization and one to shepherd the acquisition process.

"In order to guard against being too inwardly focused, we expect we would actively discuss how we might split the management team to have a group that will manage the entity, and a group that will be responsible for the transaction," he says.

3. Don't Lead with Finance

When trying to create physician and employee buy-in around an acquisition or affiliation, talking about the financial benefits first is not the right approach, Dudley says.

"[An affiliation] has to be about high-quality outcomes," he says. "I think if you deliver the message that you are leading with finance it doesn't work. You lose people right away when you start out with the financial reasons for an affiliation. It really has to be driven by value and outcomes."

Dudley adds that at Catholic Medical Center, every transaction and initiative is analyzed in terms of its potential impact on patient satisfaction, employee satisfaction, growth of the organization, and financial strength.

"With everything that we do, we look at [these] four attributes, and an affiliation would be no different," he says.

4. Keep Decision Making at the Local Level, When Possible

While the executives at the Roundtable acknowledge that some powers must be centralized after an acquisition, they agree it is important to allow as much decision making as possible to remain at the organization being acquired.

"With the exception of certain reserved powers that ProMedica retains, the management of the local hospital and the community assets stays at the local level," Akenberger says.

"In terms of some of those reserved powers, ProMedica appoints board members on their boards. If there are expenditures above a certain budget level, both from a capital and an operating standpoint, those items would then need to be approved by the corporate or the system board. However, most of the decisions stay at the local level."

5. Consolidation is Unavoidable

Given the current trends in healthcare, the panelists agree that most hospitals and health systems will be involved in a merger, acquisition, or affiliation in the near future.

"I believe that everybody [in our market] will be aligned in some fashion in the next five years," Glenning says. "There might be one or two holdouts, but I believe as organizations assess their market position, they're going to acknowledge probably what they've tried to forestall, and that is while healthcare is local, it's going to be best delivered through a system of care, not in a fragmented manner. That may not exist in other parts of the country, but here in this market, I think it's moving in that direction."

"I've heard it referred to as the 'systemness imperative,'" Wiatrowski says. "If the goal is to be sure that every patient gets the right care at the right time in the right setting, to drive both excellent patient-centered care and enough cost efficiency to bend the cost curve in healthcare, I think there has to be a broader system that gets you there."

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