Mergers and Acquisitions—5 Steps for People Success
Providers nationwide face a harsh reality. Increasing cost of providing care combined with stagnant revenues is forcing all independent hospitals and smaller health systems to search for answers on the best way to remain relevant. Forget profitability, the main concern I hear when talking to dozens of hospital leaders is keeping their doors open. Ultimately, the choice for many is to merge or be acquired by larger systems to mitigate risk of not being able to provide care for the communities they serve.
This is a common trend in today’s healthcare environment and seems inevitable for the near future as well. Mergers and acquisitions (M&A) allow hospitals to diversify risk and increase buying power which lowers cost. Shared service platforms for larger systems is now the new norm and while the benefits are indisputable on a balance sheet, the impact on the people performing revenue cycle functions can be detrimental.
Scalability means less people performing the same functions. How this process is implemented impacts the bottom line as much if not more than a Profit and Loss spreadsheet.
Hospital leaders of many acquired providers walk out the door seeking stability or are forced out. Invaluable intellectual knowledge that many of those leaders possess, leave as well. Take for example, a 10-hospital system comprised of 8-10 managers at various sites. This organization implements a shared service platform reducing the number of leaders to three. The remaining employees are faced with a decision. Take a reduced role (often with more work), compete against college graduates for the few seats that survive or leave and find new opportunities.
So what role can organizational leaders play in a successful M&A deal, and how do we lower cost without losing key employees and the intellectual capital they have obtained?
Factoring in the Human Elements of M&A
Transparency is a delicate balance during the acquisition process. That is true for businesses outside of healthcare, however I’d argue the uniqueness of the responsibility most department leaders have within hospitals is rare. What happens to a department when its leader leaves after 10 or 20 years of service? Who else in the organization knows what they know and how can that be transferred before key leaders head off to pastures new. While there is no magic formula to ensure a successful integration, organizations can take several steps to better safeguard the people aspect of the deal:
- Be transparent with goals. People leave when they are unsure about their future. Sharing organizational goals and describing how individuals fit in is key.
- Include leaders in conversations. Identify leaders in both organizations who have the right M&A skills to enable an efficient and effective integration.
- Be overly available. I have seen hospital mergers take place without dire circumstances. Make sure leaders overseeing plans are accessible and visible.
- Value the people. Consider the other entity’s people more valuable than the associated revenues.
- Include IP due diligence in your planning. Intellectual property and knowledge are the result of human expenditure of time, thorough review of IP assets is vital for a successful merger and acquisition.
Organizations that fail to consider how employees’ factor into M&A, both in the valuation and post-merger phases can risk potential under-evaluations and talent drains. In the end, the greatest strategy in any industry is as effective as the people that are executing it. Making the most of talent on both sides of the deal can be just as critical as other strategic assets.