A Tale of Two Hospitals: Blend or Build?

We are in for something different. Let me tell you the story of two hospitals planning to merge. The tale is fiction; its inspiration isn't.?

Better Care for All

Both hospitals were serving customers or patients in the same region. They had quite some similar activities and services. And so, after many years of working alongside - sometimes against - one another, they decided to work together. This collaboration was the first phase of a merger that would benefit both hospitals. Not that the hospitals had much choice. The need to invest in ever-evolving technology, the budgetary restrictions in the healthcare sector, the shortage of qualified staff, and the pandemic put every hospital before severe challenges. Many hospitals are also facing deficits. On top of all that, there's an increase in patients in the future. This increase is due to the aging of the population and the increase in chronic diseases. Finally, a merger would benefit the patients who can enjoy the presence of two complementary and collaborative healthcare institutions. Better care for all was what this merger should stand for.

The emerging collaboration was a source of enthusiasm among the members of the boards of both hospitals. The physicians were also happy about this perspective because they thought the merger would open up opportunities to improve the quality of their services, invest in new medical technology, and attract new promising physicians to a larger, more efficient hospital.?

Conversations started immediately after the announcement. The boards came together in a first meeting to build relationships between board members and determine the agenda and criteria for the collaboration and subsequent merger.

A Difficult Road Ahead

The first indications about the difficult road ahead surfaced in that first meeting. Both boards had different styles. The board of the smaller hospital was much more focused on the purpose of the merger, better care for all, while the other board was more into the financials and efficiency. Another difference was that both chairmen had different approaches. One of the chairs was much more open to dialogue, while the other chairman preferred making decisions in a smaller committee and pushing them through. A hospital is a "demotatorship," he said. He added that physicians set the line, and everybody has to follow.

Needless to say that the first meeting did not go too well. Although board members got to know one another better, the discussion about the criteria went less smoothly than people had expected. It was clear from the beginning that the valuation of both institutions would be problematic. The bigger hospital was much further in improving the efficiency of its operations, while the other was further enhancing the patients' experience.?

Both hospitals were profitable, but the smaller one had a higher operating profit and had invested more in state-of-the-art medical equipment. The bigger hospital had forsaken doing that to enhance its balance sheet.?

It was pretty tricky for both boards to come to a common understanding.

.There was also the elephant in the room: the allocation of mandates on the board of the fusion hospital. Both chairpersons were too young for retirement. And other members of the board were weary of their mandate disappearing. This elephant in the room was probably the biggest obstacle to rapid success.

This elephant in the room was probably the biggest obstacle to rapid success.

Streams

At the end of the first meeting, the group decided to launch several streams. Each stream should analyze the merger's challenges, opportunities, and threats. The streams were: patient experience, personnel, finance, infrastructure, medical excellence, and governance.?

The larger hospital sent?physicians to populate the streams, while the smaller hospital delegated people from different disciplines.

Very soon, it was clear that the streams did not work. One of the problems was that the expectations needed to be clarified. Some people thought they were supposed to advise the boards, while others thought they should analyze. People from both hospitals had different assumptions about various aspects of health care. The physicians were annoyed that they had to spend so much time in meetings which kept them from their medical practice.?

I came here to help patients, one physician said with dismay, not to waste my time in these bureaucratic meetings that lead nowhere. He wasn't alone in that sentiment.

It was clear that the merger would fail if the physicians were not on board. But the discussions were so sharp that the presidents of the boards had to stop the talks very rapidly.?

The two HR directors of the hospitals decided, with the agreement of the two medical councils, to map the mindsets and expectations of the physicians.?

The Larger Hospital

This is what the physicians of the larger hospital thought;?

• Patients come to a hospital because medical doctors perform high-standard medical procedures. Physicians are the most critical professionals in hospitals.?
• Nurses, physiotherapists, psychologists, administrative staff, and cleaning staff were less critical?than the doctors because they were much easier to replace.
• In terms of governance, it was clear to them that the general manager should be a physician. It was unthinkable for them that a non-physician would lead the new hospital, and the only question was who it would be.?
• They had invested a lot in new procedures, including the introduction of JCI, and to them, it was clear that the smaller hospital should adapt to their way of working. It was much more efficient than the smaller group adapting to the larger one.?
• Some of the physicians even talked about an acquisition instead of a merger. In the conversations, they adopted a tonality that hints at superiority. They were not asking many questions and showed disinterest in the many experiments the smaller hospital had launched.?

The Smaller Hospital

And this was what the physicians of the smaller hospital thought:

• The vision of the smaller hospital is that patients come to a hospital because they need compassionate care. To perform that care, people from different disciplines must work together, with the patient at the center of all attention and at the core of every process.?
• They hate shallow medicine (1). They often use the quote by Lynda Chin:

Imagine if a doctor can get all the information she needs about a patient in 2 minutes and then spend the next 13 minutes of a 15-minute office visit talking with the patient instead of spending 13 minutes looking for information and 2 minutes talking with the patient.?

• For the physicians of the smaller hospital, all staff members, including the self-employed medical staff, are equal. The distance between the physicians and the other medical and nonmedical staff should be kept to an absolute minimum. The only prerogative a physician has is to diagnose and define treatment. But even in that process, the physician should integrate the information they receive from the other staff members.
• The hospital has invested in what they call sustainable leadership. Their idea is that leadership fails when a physician, or any other leadership team member, has to use power, pressure, or position to get things done. Instead, leaders should base their leadership on character, empathy, fairness, kindness, and contribution.?
• They have no particular preference for a physician or a non-physician in the new hospital's general manager position. In the past, they have had both experiences. For them, it is clear that the general manager should not interfere in the nomination of the medical council president even when they have a background as a physician. The general manager is expected to treat all members of the executive committee of the hospital as equals: the nursing director, the HR director, the finance director, the facilities director, and the IT and digitalization director. They understand that there might be tensions between the medical and nursing director. But the executive committee should manage these tensions, and the interests of the patients should always be the starting point of any discussion.?
• The smaller hospital has invested in medical technology but less in administrative technology. They had also invested in more playful interaction with the patients. In the past, they had developed many strategies that made patients feel as comfortable as possible. Although nurses are under constant time pressure, they have learned ways of dealing with the psychological needs of patients. Patient ratings?were?high in the small hospital. And the physicians wanted to keep that approach because they felt they were on to something they did not learn during their years of formal education: the value of experience.
• Representatives of the small hospital enter the conversations with an open mind. They were curious to understand how the other hospital worked. They were asking many questions, and somehow, they postponed their judgments.

A disappointing Output

After three months, the streams had to present their analysis and possible recommendations. Every stream sent two representatives to a new combined board meeting. And during one day,?board members engaged with both representatives per stream. They had invited an external consultant to participate in that board meeting. And this is what they observed:

• There was no alignment between the different streams. Every stream had worked separately, and they came to sometimes conflicting results. Some streams had been looking for the same information independently, and there was much double work.?
• The representatives seemed to?disagree?or had different interpretations in some streams. In one stream, the one on personnel, there was almost an open argument during the presentation. That stream had yet to come to a common understanding of the issues and what the future should hold.
• The interaction with the board members was intriguing. The bigger hospital was better prepared for the presentations than the smaller one, and the president of the larger hospital kept pushing their vision through. He used words like "it is obvious," "there is no other way than," or "we should focus on efficiency?rather?than psychology." These words acted like triggers, and board members of the smaller hospital were increasingly annoyed by the arrogant attitude.?
• The stream on personnel had mainly dealt with the "hard side" of people management: the number of full-time equivalents, salary mass, seniority, work schedules, litigations, contracts, collective bargaining agreements, differences in statutes, overhead, attrition, and cost of training. Someone asked why they had neglected elements such as climate, well-being, attractiveness, leadership quality, and all the so-called "softer issues" the answer was clear and unanimous: they had not agreed about what was important. The delegates of the larger hospital had refused to discuss lofty things such as human behavior and organizational culture. They said it would only be necessary to talk about this once the boards had approved the merger and the first collaborations were on their way.

Inundated

Again, the discussions were complicated and cumbersome. Board members felt inundated with a mass of data without a conclusion. Some board members doubted that a merger would be a good idea, and other board members expressed their frustration about the attitudes of the other hospital.?The president of the larger hospital said that it was beyond question that this merger would go ahead. Board members who opposed this splendid opportunity had to rethink their position and not stand in the way of a once-in-a-lifetime opportunity to create something that would benefit everybody.?

The president of the board of the smaller hospital had not said a lot. He was overshadowed and overwhelmed by the exuberant presence of the other president and the general manager of the bigger hospital.?

When the meeting had adjourned, the president of the smaller hospital invited his other board members and the general manager for dinner. He had also asked the other participants, but they had declined for some reason. So he found himself in total confusion with his colleagues. Someone said they should review the situation, check what happened in that meeting and the streams, and look for levers to save the situation.?

It was clear to them that this merger would not occur if they could not find more common ground. And that common ground should have been seen before the streams even started. It was clear to them that the streams needed more guidance due to the lack of consensus at the higher managerial levels of both hospitals. Another insight was that both hospitals' habits and styles were very different. And they remembered what they had learned in management classes, namely?that mergers often fail because of human behavior.

Cultural Due Diligence

After a lengthy discussion,?they agreed that the stream of personnel should no longer focus on the monetary and legal aspects of employment but dive into what had been called the "fluffy stuff." Conducting a process of cultural due diligence was necessary. In cultural due diligence, the merging partners scrutinize the human aspect of a merger or a transition.?

Let's look into the process of such due diligence. The hospital proposed to use a technique called audeio (R). Audeio is a design thinking process that tries to turn a question into conversations and conversations into action. It links the steps of diagnosis, design, and delivery and offers a comprehensive overview of the steps needed to make change happen. Due diligence will typically focus on the first two steps of Audeio: asking unbiased questions and understanding deeply (2).?

Asking the unbiased right question

First, it is necessary to ask the right question. People came up with a set of 3:

• What should we do to make the merger a success?
• How can we overcome our differences?
• What would it mean to become a modern hospital, offering the best in class medical care to patients in the region and becoming a reference for other hospitals?

Which question do you think they chose? They went to the other hospital and asked:?“What if we would try and answer this third question and see what it does to people?”.?And that's precisely what they did. They used the question throughout the organization to energize and unite people around a common target.

Understanding Deeply

But then comes?the?challenging part: understanding deeply the factors that will help and not help in this operation.?

Mapping human Systems

The first step is to establish a map of the?human systems?of both hospitals. The idea is to analyze the relationships, the networks, the stakeholders, the dominant coalitions, the processes, the decision-making, and the general way people behave in both organizations. This process also includes sound and bad habits. And finally, it can also focus on pressing issues in both organizations: the worries, concerns, hopes, frustrations, and sources of pride. The challenge of such due diligence is to dig as deep as possible to find the assumptions?and mindsets?that make out the human operating model of both hospitals.

It is crucial to do all that?without judgment.?Both hospitals have?been successful and deliver quality medical services to the patients in the region. Both hospitals could learn something from each other to improve their operations.

Comparing Maps

The second step is to?compare both maps to find compatibilities and gaps.?The best way to do this is to have workshops with people from different departments. People can comment on the results of the first step. The style is anthropological. When anthropologists discover a new tribe, they use their wonder to ask the right questions. The second step is a first?attempt?to bridge the gap.?When people start to understand what other people do, why they do it, and how they do it, the distance between cultures is already smaller. And by decreasing the divide, trust has a better chance of developing.?

Expressing Appreciation

The third step is?expressing appreciation?for the other hospital's work. That is sometimes difficult because people are often ingrained in their habits and have difficulty appreciating what people do differently. We should never forget that in the past, these hospitals were also competitors and that, for many reasons, people may have down-mouthed the other hospital. And suddenly, they find themselves in a position where they must express their appreciation for the "other side." But again, this is necessary to start a transition.

Merging Maps

The fourth step is to?merge both maps?by combining the discovered assets. And so, a new map originates, and this map is a base for discussion. This approach is what I call a blending approach: the combination of the best of both worlds.

The Third Way

The fifth step is to?burn the map?and build a third way. A third way starts from an empty page, and people think of a new concept that does not take the best characteristics of both hospitals as the starting point. The third way starts from the outside world, and another team of people should develop this 3rd way.?

The two hospitals could blend both hospitals into one, but the decision could be to build something entirely new. Taking a blank page is liberating. The team designed a new hospital that answered the question: what would need to be true to become the reference general hospital??They debated the different criteria, purposes, and objectives that should be pillars of the new hospital. Most importantly, it allows us to focus on the challenges of society.?

Confronting the Blend with the 3rd way

And finally, the 6th step involved the confrontation between the new 3rd-way hospital and the blended map from?step 4.?

Blend or Build?

So,?a merger can be two things: it can be about building a new organization that has its own identity, its climate, its habits, vision, and mission. Or it can be about exploiting the assets both hospitals bring without criticizing or minimizing the value of each. The success factor is that people can discuss everything, and there should be no taboos. But the common interest should prevail in these discussions. More importantly, the stakeholders' interests, in this case, the patients, should be at the forefront of the talks.?

The board came together for a third meeting. This time, the board members saw a new approach. The whole system came to life in that meeting room. There were no real presentations; there were debates. Participants of both hospitals showed appreciation for the other hospital as they presented the results of the steps as described before. The room burst with energy and enthusiasm. The result of the day was a blueprint of a new hospital that exploited the assets of both hospitals. It meant that sometimes the smaller hospital had to adapt, sometimes the bigger hospital had to adapt, but in other instances, both hospitals had to embrace a new, third approach.

Cultural due diligence is much more than an inventory of what exists; it is the first intervention of change and transformation. By engaging in cultural due diligence, both hospitals acknowledge that culture is essential and could be an obstacle to success. The appreciative approach of cultural diligence does not exclude the mapping of risks. Focusing on threats instead of opportunities generates another risk: The willingness and openness of people from both organizations will be much lower. Fear and competitiveness take the upper hand, and discussions become conflictual negotiations. And that?

Many Mergers Fail

The fictitious but not so far-fetched story of the start of a merger wants to illustrate that the typical, rational approach to mergers and acquisitions neglects the single most important determinant of success: cultural compatibility.?

Only 32% of the mergers lead to a significant creation of more value.

Here are the brutal facts: Only 32% of the mergers significantly create more value. 23% of mergers generate some value. 45% of mergers destroy value (3). Organizations seem to overestimate the synergies that come from mergers (4). It is, therefore, advisable to lower merger expectations and actively search for factors that destroy synergetic effects. In the case of hospitals, the fact that campuses are apart makes it challenging to rapidly change choices from the recent past.?

The harsh reality is, say researchers from the US in 2015,?that?there is no documented evidence that hospital mergers lead to improved performance.?It's challenging to find well-documented examples of healthcare?mergers that have generated measurably better outcomes or lower overall costs (5).?

Of course, the US might not be the best example for continental Europe. Healthcare financing is different, and?here?hospitals depend more on public funding.?

Efficiency

One study in the US found that although efficiency increased after a merger, the increase was not statistically significant. That means that the rise could have been random (6).

Quality of service

A study in the Netherlands found no evidence of a positive effect of mergers on the quality of healthcare services in hospitals. However, staff had positive views of the post-merger quality, and it found a negative impact on two quality criteria (7).?

Another study of 246 acquired hospitals revealed that hospital acquisition by another hospital or hospital system was associated with modestly worse patient experiences and no significant changes in readmission or mortality rates. Effects on process measures of quality were inconclusive (8)

Costs

But looking at the US examples should worry us, especially now that more and more hospitals are merging. Despite the lack of evidence, it is fair to say that mergers of hospitals are likely to lead to some cost savings. However, the post-merger performance on cost-effectiveness is also disappointing. Many merger projects do not achieve the defined targets, which could also mean that those targets are too ambitious and unrealistic.

Patient Experience

Would merging hospitals have a positive impact on patient experience? A US study shows that the evolution of the patient experience slows down after a merger. The study used the?HCAHPS?as a measure. This study suggests that the merger leads to internal disruption, which does not contribute to the overall patient experience (9). Especially general communication and nurse communication seemed to suffer.?

Failed Hospital Mergers

In?healthcare, there are?no such?spectacular failures. However, a hospital in Ostend, Belgium,?decided to leave a merger with a hospital in Bruges, and they found a new merging partner in another hospital in the same city. It shows that mergers are fragile.?

There are some case studies from the US. Penn State and Geisinger ended their merger in 1999 after two years. The merger was successful in non-clinical fields of management, but it was a disaster in terms of clinical collaboration. There were always two camps in every debate and conflict. There was never a cultural merger, and people still felt affiliated with the original institution. The cultures of both institutions were so different that it was difficult to achieve rapid cultural integration and develop a shared identity (10).

In the Netherlands, mergers in health care are less popular because results are not good enough (11)

It's Always About People

Organizations do not behave. People do. And when a merger neglects the human side of the business, it can massively go wrong.?

One of the most spectacular failures of the past is the merger between Daimler and Chrysler. The planned merger between Volvo and Renault also destroyed 1,1 billion dollars (12). The question is whether this also applies to healthcare institutions, which it does.

The integration process should put much more importance on the cultural dimension of the merger. When the distance between the two cultures is too big, the merger has a high chance of failure. The approach, as described in the story, aims to use cultural due diligence to start cultural integration.?

It's about behavior, and it's about people. Always.?

More Info

(1) This book by Eric Topol suggest that AI will enable medical staff to focus much more on the care for patients. The final chapter of the book is the most important one: it focuses on empathy, a non-technological topic and one of the most human traits that is difficult to emulate bionically.

(2) Audeio (R) is a methodology developed for Otolith Consulting and combines design think, behavioural science and strategic facilitation.

(3) Tom Herd & Matt McClelland (2017).?Sizing Up M&A Value Now.??Accenture.

(4) ?Christofferson, S.A., McNish, R.S. & Sias, D.L. (2004). Where mergers go wrong. McKinsey Quarterly, May 1.

(5) Dafney and Thomas Lee (2015).?The good merger. New England Journal of Medecine. 372(22):2077-9

(6) Harris, J. II, Ozgen, H. & Ozcan, Y. (2000). Do mergers enhance the performance of hospital efficiency? Journal of the Operational Research Society, 51, 801-811

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(8) Nancy D. Beaulieu,?Leemore S. Dafny,?Bruce E. Landon,?Jesse B. Dalton,?Ifedayo Kuye, & J. Michael McWilliams (2020). Changes in Quality of Care after Hospital Mergers and Acquisitions. New England Journal of Medecine. 382:51-59. https://www.nejm.org/doi/full/10.1056/NEJMsa1901383

(9) Attebery, T. , Hearld, L.R. , ?Carroll, N., Szychowski, J. , Weech-Maldonado, R. (2020). Better Together? An Examination of the Relationship Between Acute Care Hospital Mergers and Patient Experience. DOI: 10.1097/JHM-D-19-00116

(10) Sidorov, A. (2003) . Case Study of a Failed Merger of Hospital Systems, Managed Care, November.

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