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Beyond dollars and cents: Culture and communications are often keys to success in hospital M&A

Hospital and health system executives tend to think about mergers and acquisitions (M&A) in terms of dollars and cents – the value of the deal, transaction dollars, performance, and future projections. But one area that is equally important in hospital M&A transactions – according to new research conducted by the Deloitte Center for Health Solutions and the Healthcare Financial Management Association (HFMA) – is culture and communications. The financial value, viability, and outcome of a transaction is indeed important. But paying attention to less tangible factors, such as culture and communications, can lead to positive financial outcomes, according to hospital executives who have been involved in M&A deals.

In our research, we looked into the impact of M&A on hospitals’ performance. We wanted to understand why some transactions have better results than others. We analyzed financial, operational, and quality data of more than 750 hospitals that were acquired between 2008 and 2014. We also fielded a survey of 90 hospital financial executives who were involved in hospital M&A, and conducted interviews with 13 others. From these findings, we identified several key strategies for executives who might be in the midst of, or considering, an M&A transaction. 

Our research turned up a wide range of M&A experiences among acquired hospitals, but we found that some elements of the experience were associated with better outcomes. In the survey, we saw that hospital leaders who paid close attention to culture, communications, and integration typically experienced more favorable outcomes (i.e., met both cost and quality goals), compared to others. During transaction planning, executives from these hospitals and health systems identified cultural differences between their organizations, and made communications and integration efforts an important aspect of the process.

Focus on culture, communication, and integration can make a difference
Some acquired hospitals improved financial performance sooner than others, according to our analysis. From the survey, 49 executives said the acquired hospital experienced improved care quality, and 25 said the acquired hospital achieved at least 50 percent of the transaction’s anticipated cost savings. Notably, 17 surveyed executives said they were involved in acquisitions that improved quality and met cost-savings goals. We dubbed these “high-value” transactions. In our survey, high-value transactions, when compared to other transactions, had:

More effective communications:

Source: HFMA 2017 survey of executives involved in M&A transactions

Stronger focus on integration:

Source: HFMA 2017 survey of executives involved in M&A transactions

Among all hospital executives surveyed, 25 listed culture and communication considerations as suggestions for how to improve hospital M&A in the future.

What should executives consider in their M&A approach?
The post-transaction goals of a combined organization might be difficult if company cultures aren’t compatible, according to financial executives who had recently participated in a merger or acquisition. These executives told us that the importance of culture and communications cannot be overstated. This is important regardless of the transaction’s size, they said, adding that a transaction can become burdensome if it lacks focus. 

To help break down cultural barriers, survey respondents suggest that leaders:

  • Articulate the mission and goals of the transaction consistently and frequently.
  • Issue communications both on a scheduled basis and organically.
  • Have senior leaders be the source of the messaging.
  • Bring integration team leaders from both organizations (at the vice president-level) into the process early.
  • Identify leadership positions early in the process – for C-suite, medical staff, quality, and other critical positions that have an influence on performance.
  • Determine the powers the legacy board will retain vs. those of the corporate board.
  • Create a single-system culture among all employees and affiliated medical staff.

Growing financial, competitive, market, and regulatory pressures are likely to drive further hospital M&A. Executives involved in these transactions should focus intently on the dollars and cents. However, as our research found, executives also should focus just as intently on less tangible factors that can influence results: culture, communications, and integration. When acquirers incorporate a proactive, purposeful, and sustained approach to M&A, they can increase the potential for the transaction to succeed and create value.

PS. Deloitte and HFMA are discussing these findings tomorrow during HFMA’s virtual conference. Please feel free to register to listen in! 

Author bio

Wendy is an experienced research, eminence, strategy, and health care professional. In her role at the Center for Health Solutions, she conducts primary and secondary research to understand marketplace trends. Her focus is with Health Care Providers. Prior to joining Deloitte, Wendy worked in various roles of increasing responsibility in strategy, planning, and business development at a health system. She also previously worked in research at a health care industry information solutions organization. Wendy holds a BBA from the University of Michigan and an MA in Health Policy from Northwestern University.
Chad is a Policy Director for the HFMA based out of Washington, DC he is responsible for analyzing the implications of legislative and regulatory developments on healthcare providers and is also a contributor to HFMA’s Value Project research. Chad is a regular columnist in HFM, the HFMA magazine and speaks frequently on issues related to health reform.