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Hospital Consolidation

Hospital Consolidation, Who Stays & Who Goes?

Since 2010, there has been an influx of hospital consolidation in the United States. In 2014 alone, there were 95 mergers, acquisitions, and joint ventures. According to a June 2015 Moody's Investor Service report, consolidation activity in the U. S. will remain "elevated" for the next two years. In pursuit of having a better understanding on how downsizing may impact C-Suite executives' employment status and/or role in the restructured organization, three healthcare executives with disparate merger roles and experiences were interviewed to gain insight and perspective.

What happens when a C-Suite executive is terminated from his/her current position or assumes a new position after a merger? What happens when a key leader of a merger decides it would be best for the new organization and community for him to step down and have a new, unaffiliated chief executive officer (CEO) take charge? What are the deciding factors/criteria on who stays and who goes? What role does cultural alignment play during consolidation? Is consolidation improving the U. S. healthcare system? 

"A little bit like Noah's Ark, we had two of everything." —Mark Clement

Linda Gump has 30 years of leadership experience in healthcare and up until 2011 had been the vice president administration and chief operating officer (COO) at St. Alexius Medical Center in Hoffman Estates, Illinois, for 16 years. Both Gump and her counterpart at a sister hospital were victims of a merger. Neither was offered a position after the finalization of a 2012 merger with Ascension Health. Gump was notified in October 2011 that she would no longer be the COO; she departed in December 2011. An outside executive was brought in as the new COO. This marked the first time in her career that Gump was unemployed.

David Crane has been a key figure in healthcare for approximately 30 years. Crane is currently the Executive Vice President/COO of AMITA Health, the third largest hospital system in Illinois. At the time I spoke with David Crane (July 2015), AMITA Health, the joint operating company formed by Alexian Brothers Health System and Adventist Midwest Health, was in the height of consolidation. Prior to the joint venture, Crane was the president and CEO at Adventist Midwest Health. Crane, unlike Linda Gump, was not only offered by the new board the opportunity to stay on as an integral part of the joint operating organization (albeit Executive Vice President and COO, not CEO), but he has been charged with the shared and divided (based upon direct reporting) responsibility of selecting which C-Suite executives will be asked to stay and which will be let go.

Mark Clement has over 30 years of experience in healthcare, 23 of those years serving as president and CEO. As of May 2015, Clement is the President of TriHealth, a five-hospital health system in Cincinnati, Ohio. Prior to TriHealth, he was president and CEO at Rochester General Health System in New York for eight years. In 2011, Clement was approached by Unity Health, a smaller scale not-for-profit healthcare organization in Rochester, about a possible merger. Clement proposed that he and the CEO of Unity Health create a new organization, Rochester Regional Health System, from the two legacy organizations and that the two CEOs (Clement being one of them) would lead the organizations until a new outside CEO was recruited and in place. "We believed that we needed to put what was best for the community and what was best for our two organizations ahead of what would might be best for us, as the two CEOs. Almost a year later, I am convinced that it was absolutely the right thing for the community."

St. Alexius Medical Center honored the severance package that Linda Gump was provided in 1999 when the Alexian Brothers took over Hoffman Estates Medical Center, a former Hospital Corporation of America (HCA) facility. As a result, Gump engaged with an outplacement service to assist her with exploring new opportunities. Gump was a participant at First Transitions, and after two months, she was offered a senior consultant position at First Transitions. Gump, who prefers staying busy and challenged, agreed to embark on a new career path that allowed her to utilize aspects of her healthcare expertise. As a senior consultant, Gump worked with individuals whom she identified and empathized with: other healthcare executives who had become redundant due to consolidation. She coached numerous healthcare executives to achieve professional and personal gain. Although Gump regards her time at First Transitions as a "wonderful experience," she took on a new role as the Chief Clinical Services Officer at Aurora Health Care in 2014.

"Individual loyalty sometimes can become obsolete in a world where functions become as important as individual contributions." —Dave Crane

David Crane and the president of AMITA Health are responsible for determining which executives will be asked to stay. They need to identify whose leadership and expertise they believe will propel a 2-billion-dollar organization into a 4-to-5 billion dollar organization that will not only be able to compete with large scale healthcare organizations, but will thrive and survive in Chicago. "Anytime you bring together two organizations, there are decisions that are made about who can contribute to the combined entity, and that has consequences for everyone. No one is guaranteed anything," says Crane. "Once you start this trajectory, it's kind of like firing a rocket-- it's going to go in a slightly different trajectory than you think. Often times, we as senior leaders think we can control every decision, but there are lots of things that change during the process." He emphasized that both Adventist Midwest Health System and Alexian Brothers Health System place "high importance on dignity and treating people well." Career transition services were included in all severance packages for the executives who did not stay after the joint venture.

It was both Mark Clement and the CEO of Unity Health's responsibility to create a new executive team for the newly branded healthcare system, Rochester Regional Health System. The criteria for selecting the new executive team ranged from experience, time in position, performance, and competencies around the skillsets that were required to do the work. No executive lost his or her job from the merger. "We were creating a much larger system, and because we believed that the work agenda for this organization was so large, we felt that we needed to retain those individuals within the system. So we found other really important roles for those people to play."

"When consolidations don't work typically is when they try to bring organizations together, but they don't align the culture across institutions." —Linda Gump

How does cultural alignment come into play during a merger?

Cultural alignment is regarded as essential for a successful merger, and as a key decision-making component when deciding who stays and who goes. David Crane looked at internal executives' attributes and skillsets to determine if they would fit the functions needed for AMITA Health to succeed. There is "great cultural homogeneity between organizations in the hospital and employee level," says Crane, "at the corporate level [there] are cultural differences; [we] worked hard to decide which of the cultural differences are worth preserving." Cultural integration and compatibility were key focus points during the merger planning for Mark Clement. Clement and the CEO of Unity Health spent a lot of time "hard-wiring" cultural alignment through communication. It was their mission to unify the new healthcare organization as an "organization that really reflected the values, vision, and mission of the two legacy organizations."

Is Consolidation benefiting U. S. healthcare organizations?

David Crane attributes consolidation with providing better coverage for millions of Americans who lack proper access. "We have to provide more care with less resources, and in a way, that is much more transparent relative to our performance and our value proposition. All of this requires real intentionality and scale. It requires size because small organizations can't provide the data and the scale that we are being asked to provide," says Crane. Linda Gump believes that the expectation for cost savings allows organizations to invest the money that is being saved by eliminating salaries into making healthcare more automated. "When you consolidate, it makes it possible to spend more on an information system than a typical standalone hospital could afford to do," says Gump. Mark Clement believes that when mergers are done correctly, "it really positions the organizations that are coming together to succeed in an environment that is rapidly changing."

So the question still remains: What happens when there are two executives for one allocated position? The answer is that it varies from one merger to the next. There is not a unified system on determining how to proceed with selecting a new executive team. In Linda Gump's case, neither she nor her counterpart was asked to stay, which she believes was a result of cultural alignment. David Crane helped determine who stays by examining attributes and skillsets, and sometimes internal candidates possess those qualifications and sometimes they do not. Mark Clement thought it would be best for the Rochester healthcare community if he and the CEO of Unity Health stepped down after the merger and for an outside CEO to jump in; however, he believed it was important for all executives to retain positions for the new organization's success.


10/22/2015 

Contributed by Julie McGhee, Quick Leonard Kieffer