Why Health System Mergers and Acquisitions Fail

According to Becker’s Hospital Review and Comp Health’s Infographic, 49% of hospital merger and acquisition (M&A) transactions are cancelled because of culture. And, only 54% have a team dedicated to M&A.

While it is widely known that culture will disable the most elegant integration plans, it appears that healthcare executives continue to place less than adequate focus on this critical factor during due diligence. The M&A playbooks used by most are void of tools that not only assess culture, but also the compatibility of leadership mindsets and management processes. Why?

I suspect this is because the motivation behind the majority of the M&A activity is about maintaining acute care volumes and case mix while delivering quality care at a lower cost. At face value there is nothing wrong with that. However, without diligence regarding how two organizations are going to work together to achieve this goal, the accretive value of the transaction is at risk.

It gets even more interesting when two not for profit systems with different religious heritages come together, or when a for-profit and faith-based system merge.

How can something so obvious as culture and leadership compatibility be overlooked prior to signing the deal?

While I don’t have more than anecdotal and informal comments from my professional network and clients, there are three consistent themes:

  1. Many CEO’s get focused on themselves and what they personally want to win in the deal. They empower their CFO and General Counsel to do what they do really well, pinpoint the financial benefits and negotiate the best deal possible. In this all too typical process, little if any focus is placed on leadership and cultural compatibility, unless abhorrent behavior is experienced or liabilities regarding workplace atrocities are found.
  2. When outside consultants are engaged to help with the assessment of cultural and leadership compatibility, they typically bring their own playbooks and introduce new language, tools, etc. into a environment that has historically placed little value in this area. Eventually, an assessment is completed and a cultural integration plan developed. However, the leadership of the new organization may lack the mindset and skill set to implement.
  3. Even when there are highly effective internal resources that can be deployed to assess cultural compatibility, their voices are rarely heard as, in general, healthcare systems historically have not had much muscle in organizational and leadership development.

So, what’s the answer? Here you go.

Dear Ms./Mr. CEO:

Your Board is holding you accountable for the success of this transaction. They have approved the capital allocation and expect you to deliver great care at the lowest possible cost, while preparing your system for population health management.

You know that your system can no longer save its way to sustainability. You know that results will only occur with tight alignment across your strategy, leadership, culture, value proposition and brand. You also deeply understand that this alignment must be conceived in partnership with physicians.

As you embark on due diligence, appoint a full time integration executive. This person will not only lead due diligence, but also be accountable for the integration. While others on the team will being financial, legal, information technology/systems, clinical and operational expertise, this leader must integrate his work and overlay her/his understanding of cultural and leadership compatibility.

This overlay is a natural outcome of meeting with administrative and physician leaders, asking the right questions of the right people and listening. There really is no magic here. Walk around any hospital for a day and engage administrative and clinical leaders in dialogue and you can’t help but get a feel for the cultural dynamics. Based on what you conclude, allow your judgment to take you further in due diligence.

I offer you a simple framework to apply is your due diligence and integration planning. This High Performance Measurement Model will provide you with a practical roadmap for questioning and listening.

http://www.aligns.net/docs/How_Companies_Achieve_High_Performance.pdf

I would be happy to talk with you more regarding lessons learned about leadership and cultural compatibility.

Sincerely,

Dave Dowling