How to go into mergers with your eyes open
Given the current turbulence throughout the larger health care system, there is no guarantee that the merger process will be easy or painless even though it may be the only way to ensure a hospice program’s long-term survival. For hospice management, the potential threat to the manager’s own job may be the most difficult issue. But experts believe it is possible to balance a manager’s personal interests with the mission of the organization. Consultants and battle-scarred veterans offer these suggestions on how hospice managers can approach potential merger talks from a realistic standpoint:
1. Identify your goals and reasons for merging in the first place.
For hospices the goal might be to improve or at least maintain the quality of their services while achieving needed cost-effectiveness and economies of scale, says Maureen Hinkelman, CEO of Hospice Care Network in Westbury, NY. "In addition, they should look at whether they serve the geographic area they will need [in order] to get contracts with managed care organizations and health systems.
Once you have identified the goals, the merger can be structured around them," Hinkelman continues.
"Sometimes people want to come together and do business right away rather than talk about the type of organization they want to make together," says Linda Shinn, MBA, RN, CAE, principal with the Virginia-based Consensus Management Group. "You need to go through the old mission drill first. Before you talk about how many people will be on the boards and committees, look at what kind of hospice you want to put together."
2. Identify market forces, internal strengths and weaknesses, and strategic opportunities.
Once you clarify the mission you hope to preserve, you need to strategically assess the marketplace to identify opportunities and the range of possibilities, says Jeannee Parker Martin, RN, MPH, San Francisco-based vice president of the Corridor Group, a health consulting firm based in Overland Park, KS. What is the agency’s current position in the market and how might that change? What might potential partners bring to a merger? "Once we have identified all of the options, we take those global options and hone in on more specific ones," Martin says. (For Martin’s 10-step process for mergers, see p. 41.)
3. Carefully assess the potential partner regarding fit.
Obviously, due diligence by both sides is essential to any merger, but there are less tangible signs of whether the partners will be happy together, experts say. "Always check out the culture, track record, and people of the other organization before you merge," urges Margaret Gilmour, RN, MS, director of Home Health and Hospice Care in Nashua, NH. "Have lunch with folks who work there, and see how they’re treated."
Each party’s organizational culture will exert a subtle but powerful influence on the ultimate success of the merger. In fact, most unsuccessful mergers founder on the culture issue and very different ways of viewing the world, says Bruce Butterfield, CAE, consultant with the Forbes Group in Fairfax, VA. "We say, date before you get married. Try doing things together and see if it works. Plan a joint conference or seminar; do a newsletter, and see if you have conflicts. If you find you do have different ways of doing things, are they minor or serious?"
4. Don’t wait until financial problems are acute.
Hospices will be in a much stronger bargaining position if they proactively seek partnerships based on strategic plans for their future, rather than reacting to a fiscal crisis. Gilmour also recommends that hospices go on a diet first, trimming administrative fat and inefficiencies before the merger, rather than leaving this to the blunter scalpel of the merger partner.
5. Flexibility is essential.
"There’s going to be a lot of change; it’s a very emotional time, no matter what the organization. You have to try as best you can to be open and help your organization make the transition. That’s true for all levels of management," Hinkelman says. "You also make yourself more valuable in a merger by being able to solve problems in advance for the other party," says Gretchen Brown, MSW, CEO of Hospice of the Bluegrass in Lexington, KY.
6. Avoid preconditions and "deal-breakers."
"We run into situations where people come to the table with preconditions or expectations We’ll all still be able to be CEOs and keep our agencies’ names,’" Shinn says. "It doesn’t work that way. We see promises made to staff that they’ll all keep their jobs. You can understand the human impulse to do so, but you just can’t do that," she adds. "In the mergers we facilitate, there are no promises or preconditions. Everybody comes to the table with a clean slate," Shinn explains. Agencies often have a hard time saying goodbye to the past. "I’ve seen deals go sour over a logo or an agency name." There are more important issues to deal with first, before deciding what’s on the letterhead or the sign out front, she insists.
7. Job issues can be the most difficult.
"If you are planning a merger, I’d hope you could go into the discussion with your eyes open and be realistic about the outcome," says Suzanne Greene, MS, director of Hospice at Lourdes in Binghamton, NY. "There has to be downsizing. The whole point of coming together is to find ways of achieving economies of scale. If you have people with their own agenda of just keeping their jobs, then you’ll have problems."
Gilmour concurs that it is important for hospice managers to recognize upfront that their jobs likely will change. "That’s a given. You need to acknowledge, I may lose my job.’ You need to think about what these changes will mean upfront so you can free up that issue somehow and be able to negotiate for the organization in a way that best serves the organization. Some hospice executives will be able to decide, My job is to help transition this organization and then go somewhere else.’ That is a strong position to work from." In other cases, Gilmour says, it is better not to ask the executives who are likely to lose their jobs to negotiate the merger. Even though they may be the most knowledgeable, they can’t do their best negotiating while serving two conflicting goals.
Both the executive and the board will be well-served by putting these issues on the table early on, openly discussing the manager’s hopes for the future and the board’s expectations for what will happen after the merger. "Maybe there is only one possible outcome, but you can still go in with your eyes open," Butterfield suggests. "I’d like to think that in fairness the board would sit down with the manager and [openly say], Joe, you are not likely to be the new executive.’ The only way I can see to do this is to be open and honest about it. The worst thing is to not talk about it or to make veiled promises."
Severance package crucial
In such cases, a management contract that spells out a severance package or contract buyout will offer the manager some realistic peace of mind. Hospice executives who don’t already have a written management agreement with a severance clause are recommended to seek one, even at the start of merger considerations. "I would also support the idea of asking the board for a straight answer," Brown says. "I have a severance clause in my contract that spells out what would happen in a merger. Nobody is buying us, but in today’s climate, it could easily happen. Since I built this program, I think they owe me that much." Severance packages in hospice vary widely, often from weeks to months, and could be tied to years of service.
"It’s a matter of being aware of what’s going on around you," Shinn says. "The altruistic notions with which these organizations started may get left behind in this process. It’s legitimate to raise the issue of your future. I don’t care how good the intentions, when the chips are down, you have to protect your own career."
Martin shares a story in which a hospice board concluded that its CEO was not the right leader for the future merged organization. "And the CEO wasn’t willing to go to the board and say, This is what I want,’ despite my coaching which only confirmed the fact that this was not the right person for leading the new entity."
[For more information, contact Jeannee Parker Martin at (415) 452-4383.]
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