With nearly $2 billion spent on hospital mergers and acquisitions in 2012, consolidation is becoming the new normal in the healthcare industry. And although there are several considerations that leaders must weigh when evaluating a possible deal, one issue that can’t fall by the wayside is change management.
According to the March healthsystemCIO.com Snap Survey, 75 percent of CIOs cited the merging of cultures as the biggest challenge in consolidating organizations. “Even the ‘perfect’ deal requires much more advanced focus on the challenges of bringing most often proud and long histories into one,” noted one respondent.
Another chief concern is leadership — specifically, who will be responsible for what areas. Seventy percent of CIOs said they believe failure to establish a governance structure before a merger is finalized can be a deal-breaker. “Failure to plan and manage the process will doom it,” said one CIO, while another cited “unrealistic expectations about resources required to realize economies of scale” as a key driver.
However, even when there are multiple warning signs, half of CIOs said they wouldn’t be willing to walk away from a deal; although, as some respondents noted, CIOs seem to have little say in the matter at many organizations.
(SnapSurveys are answered by the healthsystemCIO.com CIO Advisory Panel. To see a full-size version of all charts, click here. To go directly to a full-size version of any individual chart, click on that chart.)
1. Have you been with an organization that had plans to acquire or be acquired by another organization?
Yes, I’ve been at an organization that was acquiring one or more hospitals.
- We are kind of weird about this topic. Some we buy, some we partner with. Buying is easier; partnering requires much more finesse.
Yes, I’ve been at an organization that was being acquired.
Yes, I’ve been on both sides.
- I have been on both sides in the last 6 months!
- And I have been with one that was had to be reversed because the value simply was not there as modeled.
No, I haven’t experienced either.
2. If so, did the merger go through as planned?
Yes, it was a success
Yes, but there were significant hurdles
- Some succeeded, some did not.
- The great sales job… here is why we should/must do this deal… 99.9 percent of energy is focused on the positives and the .01 on challenges ONLY gets discussed/worked on post-closure. Even the ‘perfect’ deal requires much more advanced focus on the challenges of bringing most often proud and long histories into one. Who will be responsible for what, when, how, etc.
- The merger was dissolved a year later.
No, it did not go through
- We went to the plate three times in my tenure here and had to walk back to the dugout each time.
3. What was the most significant challenge during the merger/acquisition process?
Forming a leadership team
Establishing an organization-wide IT strategy (enterprise vs. best-of-breed, selecting an EMR, etc.)
- All listed are critical, but if culture is not focused on formally (not just assumed to work itself out), it eventually will trump material amount of could-have-been great successes.
- We are too nice when it comes to this. I have worked at acquiring companies before and it was very operationalized, which made it easier for everyone.
- Merging cultures play a role, but so do local politics and federal intervention.
- All of the above and then some. A very big deal which we have iterated about a half dozen times in the past five years.
4. What is the primary reason why some mergers fail?
Failure to agree on an IT strategy
Failure to agree on governance structure
- All of the above, depending on the deal. Who really is going to be responsible for what?
- Issues related to complex arrangements and physician compensation, among many other things. In the end, does each party satisfy the expectations of the board?
- I don’t know.
- Any or all of the above are true, but failure to plan and manage the process will doom it.
- Incompatible cultures; unrealistic expectations about resources required to realize economies of scale.
- Mistrust and lack of understanding of post-merger realities.
5. Would you be willing to walk away from a merger/acquisition if you didn’t feel it was the right move?
- Without question. Have led such a decision in a past life. I know that the worst deal you can make is the one where, going in, all of the red flashing lights are going off, and you proceed anyway.
- Absolutely, and we have.
- Seriously? I am the CIO. Do you think that the CIO has any influence regarding a merger decision? The only way I walk away is to go to another organization.
I’m not sure
- Do you mean resign my position as CIO ahead of the actual merger? No.