A 2012 survey of hospitals found that only 13% planned on remaining independent in the near future, suggesting that 87% were either considering or had definite plans for alignment/integration with other healthcare organizations.1
Whether you are ready to make an alignment decision now or realize that it’s still several years off, the time to decide how you will choose the best partner when the time is ripe is now. The worst time is when an organization has its back to the wall and needs to find a partner with deep pockets to help them make payroll in two weeks. You may be the hospital acquiring another organization or your organization may be looking for a partner to help you navigate the turbulent water ahead. In either scenario, you need to plan ahead and engage in discussions on how you will make your ultimate decisions.
So, where do you start? There are four questions that can help ensure your internal stakeholders are on the same page:
- What Value do we bring to any partnership?
- What are our results? If you are not proud of your current results, get to work today to improve quality, volume, efficiency, and the patient experience.
- What version of "alignment" are we willing to talk about? There are lots of types of alignment. Alignment doesn’t mean that you have to give up local control or sell your bricks and mortar.
- Why are we looking for a partner?
We’ve been using a process with hospitals, medical groups and organ procurement organizations that starts with the executive team and broadens to include the Board. It’s a four step process: First the executive team brainstorms what would be important to them in any alignment discussion. Then the executive team prioritizes these attributes. Next the discussion continues with the Board. Finally the Board prioritizes their attributes.
Along the way, there is discussion and conversation to ensure the Board and executive team are aligned in their priorities. We think there are four critical success factors in this process.
- First is calling the process an "alignment" discussion. Alignment is a much more neutral term than "merger" or "acquisition". There is a whole continuum of options for alignment and until you have these discussions, it’s difficult to know where you’ll end up.
- There needs to be active discussion among the executive team members and then among the Board members. Since some people process decisions differently, we feel it is advantageous to start the discussion one evening of a Board retreat and continue it and prioritize the next morning after everyone has had some time to ponder and reflect.
- These are strategic discussions and should be confidential and not shared openly with the rest of the staff or community until the timing is appropriate.
- Don’t keep any potential partner off the table until you’ve developed the decision-making matrix and done some due diligence. You personally might not want a for-profit or a religiously-oriented company as a partner, but they might be the best organization to address your priorities and enable you to continue to have the capabilities and capacity to serve your community.
So, what does a decision-making matrix look like? There are a number of variables which make their way into every decision-making matrix.
includes alignment of a partner with your mission, vision, values and culture. You might ask the questions: Is it the right thing for the patient? Is it legal? Does is add value to our clients?
is another critical decision point. Is the other organization financially viable? Do they have a track record that suggests financial sustainability for the future?
is often the sticking point over which alignment discussions break down. Know where your "line in the sand" is before you get into alignment discussions. How much authority over local decision-making do you want to retain? Are you willing to trade some of that local autonomy for a commitment to continue a specific level of healthcare services in the community?
Assuring an ongoing commitment to the community
is a variable that is especially critical to small, rural hospitals which are entering alignment discussions. Does the potential partner have the capability to assure the rural community has an adequate supply of primary care providers, specialty physicians and surgeons? What is the company’s track record in other small, rural communities where they have relationships?
Some consideration should also be given to ensuring that stakeholders understand the various models—at a high level. Other alignment dimensions to consider include:
- Level of physician integration
- Progress/philosophy in care management
- IT platform and sophistication
- Cost management
- Balance of service distribution system
- Payer relationships/contracting
Developing a decision-making matrix can not only be used when considering organizational alignment with another entity, but can also be used when considering the addition or discontinuation of a product or service line. Earlier in my career when I was a VP in a healthcare system, we called this process an Internal CON and it was used any time we were considering adding a business line, when new human resources were needed, when an investment above a specific dollar amount was required, or for something that was not in the budget. When used in this way, you may want to add four items to the decision-making matrix.
- How does this service/product enhance or provide synergies with other service lines?
- The financial assessment should include short-term and long-term ROI and an assessment of when the new service/product will be profitable.
- Ask if the new service/product will address a hole in the organization’s gap analysis and if you should build or buy the capabilities.
- Consider your exit strategy and the cost of exit if you are not successful.
Creating your own decision-making matrix is not a process that requires significant time or resources. It’s as simple as assembling the right people and having a facilitator who remains impartial if the dialogue heats up or becomes contentious. Starting the conversation about alignment as early as possible is critical in order to make the best decision for your organization and for your community.
To help you get started, we’ve created a sample decision-making matrix that is fully customizable and can be updated based on your organization’s needs.
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1Reference: Yanci, J., Wolford, M., & Young, P. (2013). What hospital executives should be considering in hospital M&A. Retrieved January 6, 2013 from http://www.dhgllp.com/res_pubs/Hospital-Mergers-and-Acquisitions.pdf.