Hospice merger trend accelerates, causing unanticipated pressures
Big changes, staff turnover, feelings of loss are unavoidable
The ongoing transformation of the American health care system and relentless pressures to contain costs are fueling a new round of mergers involving hospices. But are hospice managers who may find themselves in the role of point person in merger talks being as realistic as these emotionally charged situations demand?
In some mergers, hospice managers have negotiated themselves out of jobs. And while protecting your own job can’t be of paramount concern, experts stress the importance of being a responsible steward for both the agency’s mission and your own future by entering negotiations with your eyes open and prepared to address the issues. (See related story on how to approach mergers, p. 40.)
Many levels of mergers possible
Mergers involving hospices are taking place at a variety of levels, reports Bernice Wilson, RN, MS, executive director of the Ohio Hospice Organization in Columbus. Some hospices combine with other hospices in nearby communities to offer wider geographic coverage for managed care contracts and to achieve economies of scale and savings in administrative overhead.
Others are merging into home health agencies or hospitals, usually as the smaller and less powerful partner, in order to have a place in the new health care systems that are attempting to vertically integrate. In some cases, a hospital or home health agency merger brings formerly separate hospices together; or a larger entity, such as a hospital chain, might enter a community and purchase all three levels of care, Wilson says.
"I think hospice people sometimes get into merger situations with the point of view, We can work together; we’ll get managed care contracts, and everything will be wonderful.’ But the next step is you need to wring out excess costs, so you have to axe positions and then people get hurt," she says. "Hospice people expect that their abilities will be respected, and when they sign the papers, it turns bloodthirsty. They also have a tendency to walk in with rose-colored glasses when they sit down to negotiate with hard-nosed business people."
But if managers viewed the transaction more as a sale, then they would try to get the best possible price for their agency and negotiate safeguards for its mission and values, adds Wilson. She cites a Harvard Business Review article asserting that 80% of strategic alliances in the business world actually end up with one party acquiring the other.1
Jobs can be lost
Mergers have also heated up recently in New York, when St. Peter’s Hospice in Albany and Capital District Hospice in Schenectady joined to form the largest hospice in the state under Mercycare Corporation, St. Peter’s parent health system. On Long Island, two independent hospices, Hospice Care of Long Island in Westbury and Hospice of the South Shore in Bay Shore, recently merged to form the Hospice Care Network, although both programs have retained their names for doing business in their communities. Farther upstate, the Hospice at Lourdes in Binghamton last fall acquired Tioga County Hospice, a smaller program of the county health department.
"The thing I find is that these mergers do mean people sometimes lose their jobs," observes Amber Jones, MEd, executive director of the New York State Hospice Association in Albany. "Because of the unique origins and history of hospice, this outcome is viewed as harsh, and people end up surprised when it happens."
And yet, says Gretchen Brown, MSW, CEO of Hospice of the Bluegrass in Lexington, KY, hospices often fail to appreciate the well-known organizational development theory that a change in leadership is almost always accompanied by significant staff turnover. "The same thing happens only more dramatically with a merger. It doesn’t necessarily mean staff are disgruntled, but it’s a time for reappraisal and change," she adds. "Plus, I think the bigger hospice [in a merger] will usually have a totally different corporate culture."
Brown’s agency has already acquired a smaller hospice in the eastern part of the state and has carried on informal merger discussions with other hospices. Usually Hospice of the Bluegrass is the larger entity in these discussions, so some hospices in the state have expressed fears of being "gobbled up" by it, Brown says. On the other hand, a small hospice may not have as much market value as it believes, especially if it waits until a financial crisis hits and then starts casting around for a savior.
"The other side of the issue is that hospices today are under so many pressures with no obvious path to success," Wilson says. "People who, in good times wouldn’t consider an acquisition, after so many bad days in a row, they get called with an offer [by another agency and consider it]. Or they’re fearful about not being able to survive."
Change is difficult
"It’s an awkward situation," says Maureen Hinkelman, CEO of Hospice Care Network in Westbury, NY. "A merger can have so many positives, but it will affect certain people negatively. There certainly are anxieties and legitimate concerns. Change is always difficult, but your success as a manager ultimately depends on how you steer the agency through the changes," she says. "I’ve seen many managers go through this process. The ones that do well see it as an opportunity to do something new, and then they propose how they can help by filling that role."
"What’s going on, basically, is loss, which we in hospice should understand," adds Margaret Gilmour, RN, MS, director of Home Health and Hospice Care in Nashua, NH. "Sometimes loss is veiled in denial. Maybe some executives didn’t do a realistic reading of the situation, or the negotiating team didn’t do its job well enough. Or else the new vertical environment which the hospice is entering into doesn’t understand what the position of hospice manager is all about," Gilmour says. "To me, this is the opportunity hospice brings forward into these systems. They don’t know that we really have something to teach them, but our job is to make them understand."
Mergers are not the only way for independent hospices to address the need to horizontally and vertically integrate themselves into the health care system, says Stephen Connor, PhD, president of Hospice of Central Kentucky in Elizabethtown, and co-executive director of the newly formed Alliance of Community Hospices. Other partnership models start with simple contractual agreements or, for more complex projects, joint ventures.
Community-based hospices in a number of regions have come together to create formal alliances, which give them a common front in contracting with large, regional health systems and managed care organizations. However, getting the still-independent alliance members to agree on such issues as uniform admission practices or data collection standards can be a laborious process. Antitrust concerns require the alliance to jump through additional hoops when it comes to pricing and marketing their services.
Connor, an advocate for preserving the community-based hospice model, first explored a vehicle called the limited liability company in which the partners together form a third entity to work on their behalf in shared activities. However, such a structure can fall into a tax status gray zone, Connor found. So he opted instead to create, with Hospice of Louisville, a nonprofit entity called the Alliance of Community Hospices, which then acquired the two agencies. Both hospices continue to operate under their own names in their communities, and their boards of directors were also retained, although with different functions.
The alliance, which was formally constituted last November after more than a year of discussion, also provides contractual management services to two other Kentucky hospices and has the potential to take on other full partners as well. What makes this alliance unique, however, is that Connor and Helen Donaldson, RN, MSN, CEO of the Hospice of Louisville have divided up administrative responsibilities. They serve as co-executives, and both are equally responsible to the new Alliance board of directors.
"What happens to executives can be the thorniest issue in a merger," Connor says. "In this case, both execs are able to work together. We both have talents that are needed. We’re trying to create a sense of empowerment for our staffs, and [the two of us] working together sets a tone for the whole organization."
Fortunately, the alliance is in an expansion mode, with growing responsibilities to build an infrastructure for bringing on other partners, so it isn’t seeking to cut back on staff. In addition, the two agencies were motivated by a strategic view of the future, rather than immediate financial need. "We both have enough on our plates to move forward, plus Steve has been easy to work with. It’s a great situation. Everybody has been extremely supportive, including the two hospices’ boards," Donaldson adds.
"Part of our purpose in forming the alliance is that community-based hospices are in jeopardy. Small- to medium-sized programs will have a hard time surviving," Connor observes. "In our negotiations with other hospices, we’re not interested in getting rid of other executives but in making their lives more livable."
Connor adds he doesn’t know how long the co-executive arrangement will last. "So far, we’ve been able to work out every speed bump." Connor says he went through a merger back in 1981 involving Hospice of San Francisco, knowing in advance that he would be out of a job. "I have a pretty solid faith in the industry, and I’m very comfortable about my own future in it."
Reference
1. Bleeke J, Ernst D. Is your strategic alliance really a sale? Harvard Business Review 1995; 1:97-105.
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