Given all the hard work, risk, and public advocacy that goes into a merger, those who've undertaken the enormous task are apt to accentuate the positive.
It shouldn't be surprising that 78% of healthcare executives in the HealthLeaders Intelligence Report, Healthcare M&A: Moving Forward in a Post-COVID-19 Landscape say their organization would choose to participate in its most recent M&A again.
Given all the hard work, risk, and public advocacy given to a merger, those who've undertaken the enormous task are apt to accentuate the positive.
Ballad Health CEO Alan Levine shares that sentiment.
In 2018, as CEO of Mountain States Health Alliance, Levine oversaw the merger with Wellmont Health System that essentially doubled the size of the newly formed Ballad Health, a 21-hospital health system serving four states, based in Johnson City, Tennessee.
"There's been such an enormous benefit to the region by doing this," he says. "It's been challenging because we basically agreed to very aggressive regulations, which has made it a lot harder. But even with that, this was the right thing to do."
"Now, our goal is to operationalize what we've created and, so far, we're doing a good job of it," Levine says. "Our quality metrics have improved dramatically. Five of our 17 quality measures are now in the top-performing decile in the country, and that happened after the merger."
"We've improved our margins. We went from basically a zero percent margin to a 1.6% margin, so our margins have improved but they're still well below what the industry expectation should be."
The margin improvements have come, Levine says, even as Ballad Health has reduced physician charges by 17% across the system.
"The most important access point for patients is urgent care and their doctors, and we did a 17% average charge reduction," he said. "In fact, in some cases, it was a 50% decrease in out-of-pocket costs."
"We also expanded our charity policy. Prior to the merger, if you were up to 200% of poverty, we wrote off all the cost of your care. After the merger, we increased our charity policy up to 225%, and we provide deep discounts for up to 400% of poverty," he says. "So, we actually expanded pretty dramatically either the number of people that are eligible to have their care completely written off, or we apply deep discounts to it that weren't available before the merger."
You Can Only Sell Your Hospital Once
Tim Putnam, CEO at Margaret Mary Health, a community-owned, critical access hospital in Batesville, Indiana, has a hard-nosed theory on why executives have no post-merger regrets.
"Everyone who answered that [survey question in the HealthLeaders report] was probably employed by whomever was acquired," Putnam says. "It's not surprising that people would say that because they've got to get up in front of their communities and say, "This was a good thing for our community.' "
"One of the things that I hear from my colleagues is that you can only sell your hospital once, and you've got to do it right," Putnam says. "I'm not saying it's not the right move, but you can only do it once."
Some Buyers' Remorse
Of those respondents who were involved in M&A activity, only 10% expressed buyers' remorse for their most-recent acquisition. Of that 10%, 86% cited "incompatible cultures" as the reason their M&A fell short of expectations.
"There’s something we refer to in M&A circles called 'deal fever,' " Peggy Sanborn, system senior vice president of strategic growth, partnerships, and joint ventures for CommonSpirit Health, said in a recent HealthLeaders webinar.
"Many times, the excitement about the opportunities that a deal represents for the organizations coming together and all the possibilities they see, as well as the enthusiasm for successfully completing a transaction, can blind us to the critical review of whether or not we actually have a fit."
"It requires quite a bit of leadership time talking about what it means to come together and exploring the vision and values and mission of the organizations very carefully and discussing the difficult issues quite openly, and either agreeing that those are things that clearly can be navigated or they may be real barriers to success," she said.
"We tend to avoid those difficult conversations during the M&A process because we're focused much more on the tactical issues or the economic impact issues or the legal and risk issues associated with the transaction," Sanborn said.
Levine agrees, and says, "Sometimes people want the merger so bad they overlook all these different things."
"I've seen mergers where you've got co-CEOs, and [they're] going to keep both corporate offices open. I don't know how those things even work," he says.
"Our boards at Wellmont and Mountain States—early on—knew culture eats intent for breakfast every morning. We hired a consultant that came in and did a deep dive culture audit of management, the boards, and our frontline staff."
"They did these spider diagrams where they overlaid the culture of Wellmont versus Mountain States, and below management and the board there was no difference in the cultures. The nurses [and] doctors just wanted to take care of patients, and they didn't care whose name was on the wall. You get up into senior management and the board and the cultures were very different," he says.
The merging systems used data gleaned from the consultants to deal with potential culture clashes on the front end.
"We went through serious negotiations about who was going to be on the new board," Levine says. "We embedded into the bylaws provisions that really push out System A versus System B. We made it very important at the very beginning that there was no discussion about Wellmont or Mountain States. We were Ballad."
Tim Putnam takes a bottom-up view. He says the culture clashes don’t manifest themselves in the C-suite or the boardroom, but in the hospital halls.
"The C-suite folks are going through the due diligence, not the people in radiology or scheduling," he says. "When you get down to the frontline staff, one organization may allow a lot of flexibility at the frontline to handle patients' schedules, another organization may be very rigid in that process. Minor things that you don't think are an issue ... take a while to overcome."
Putnam says he was involved in the acquisition of a small system in a deal that was rife with cultural issues.
"Everything changed," he says. "Whether you're the acquiring organization or the acquired, it changes you. ... It takes a decade to work through that culture change."
To download the full July/August 2020 HealthLeaders Intelligence Report, click here.
“Whether you're the acquiring organization or the acquired, it changes you.”
Tim Putnam, CEO, Margaret Mary Health, Batesville, Indiana.
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.
Nearly 80% of healthcare executives in a HealthLeaders Intelligence Report who participated in a recent merger or acquisition say they'd do it again.
Stakeholders agree that, while the coronavirus pandemic may have slowed M&A activity temporarily, it has not undermined the underlying incentives to consolidate.