Consolidation may not be the right move for all hospitals.
Healthcare reform, with its myriad of unknowns, may drive independent community hospitals to consider a merger or some variation of a strategic alliance that would shift local control — ownership — to a larger health system.
The Accountable Care Organization (ACO) concept will undoubtedly spur some of this rush to affiliation — a sale or change of ownership control — because some hospitals will question whether they have the expertise or financial resources to manage reimbursement risks. They reason that a health system with deeper pockets and a broader range of expertise is the prudent course of action to deal with what many believe will be complex implementation options under the ACO model. Then there are CEOs who have heard about ACOs and want one just because…. as this video so aptly explains.
My suggestion to these hospitals: stop. Take a breath. At this point there are very few experts with any real ACO experience. Even consulting firms that stand to make an enormous amount of money selling ACO knowledge and insight to client hospitals are being unusually circumspect. Everyone is waiting for the rules to be written and then explained.
Now here is the real irony. Healthcare reform is partially about reducing costs. Sure there will be improved access and payment reform, but at this point, there is very little in the reform legislation that focuses on costs and quality. When mergers are announced, usually with grand fanfare, the explanation for the transaction almost always centers around the belief that the merger or strategic affiliation — a sale by any other name — will produce synergies that will improve access, enhance quality and reduce costs. The truth is that mergers almost always fail to produce on any of their grand promises. In fact, there is a large body of evidence that healthcare mergers are extremely difficult to pull off and most result in unhappy marriages, not the hoped-for improved clinical quality and cost-saving juggernaut that was promised. That is the norm.
Of course there are some good examples to the contrary. East Texas Medical Center Regional Healthcare System now owns or leases more than 12 smaller community hospitals throughout northeast Texas. Their approach incorporates investment to improve the local primary care hospital in hopes of keeping their residents close to home for the vast majority of all their care. In addition to capital investment, ETMC has helped communities recruit physicians. Almost all of what they do is to support their regional mission — keeping their patients close to their homes, family and friends. There are other successful consolidations and systems like ETMC, who have crafted relationships that are mutually beneficial. But so many do not work out so well.
At the end of the day, CEOs in community hospitals are facing some daunting challenges. This has always been one of the toughest most underpaid jobs around, a great deal more complex than most businesses of similar size. While I may have 30 years of executive experience and a point of view that is built around my experiences, I am not about to second-guess a CEO who is trying to do the right thing for his or her hospital and their community. I just want to offer a word of caution: Do not depend on your merger partner or their advisors to help guide you to do the right thing. As my grandmother once said, “If it sounds too good to be true, it might just well be.”
© 2010 John Gregory Self