Monday, January 17, 2005

Believing the Untrue

In connection with the ongoing discussion of hospital mergers and economies of scale, John Russell, long-time executive head of what is now the Hospital and Healthsystem Association of Pennsylvania, has provided me with excerpts from an article that Steve Shortell published back in 1993. Steve is a well-known academic guru in the field of health care and is currently Professor of Health Policy and Management at the University of California in Berkeley.

Shortell identifies eight major barriers to creating successful mergers.

In headline form, they are

Failure to Understand the New Core Business
Inability to Overcome the Hospital Paradigm
Inability to convince the “Cash Cow” to Accept System Strategy
Inability of Board to Understand New Health Care Environment
Ambiguous Roles and Responsibilities
Inability to “Manage” Managed Care
Inability to Execute the Strategy
Lack of Strategic Alignment.

Each of these has several subheadings which can be seen by looking up the original publication, which is in The Journal of the Foundation of the American College of Healthcare Executives, Volume 38, Number 4/Winter 1993.

I would have added another, which would be Discrepancy between the Actual and Stated Reasons for the Merger.

As I observed mergers happening during the 80’s and 90’s, it seemed to me that most of them were motivated either by the empire building instinct of an ambitious CEO or by a desire to achieve a stronger bargaining position in the managed care market. (The managed care company would offer a small hospital a low rate of payment and the hospital could take it or leave it. The bigger the hospital was, the harder it was for the managed care company to do that). Probably in most cases there was some of both.

Of course, neither of these motivations could be voiced publicly so the stated reasons included things like economy of scale, consolidation of services, elimination of duplication, integration of care, and so on.

The prudent course following most mergers would probably have been to leave existing operations pretty much untouched at first, and then implement carefully planned consolidations of demonstrable benefit as opportunities arose. But, there was great pressure to deliver on the publicly made promises and to do so quickly. It was probably also the case that some CEO’s came to believe their own rhetoric. The sad consequences are now history.

A lot of things in this world would go better if people were less willing to believe things that are untrue.

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