iProtean—M & A as a Strategic Option

Whatever the market and financial conditions of your hospital, the quickly evolving healthcare environment dictates a robust assessment of its future direction, including strategic collaborations.  AHLA and HFMA recently noted in a jointly sponsored webinar on mergers & acquisitions that “Healthcare reform and other macro economic factors are pushing more providers to integrate both vertically and horizontally. . . Successful organizations understand their options, have developed a strategic framework to identify high potential arrangements, and use set processes to execute the integration strategy.” (Trends in Healthcare Mergers, Acquisitions, Consolidations and Affiliations. February 28, 2012.)


Boards and executives should be prepared to evaluate the conditions for strategic collaboration—whether these involve merging with or acquiring other organizations, or being acquired by other organizations—before the need arises.


The iProtean course Mergers & Acquisitions as a Strategic Option provides a framework for engaging in this necessary and challenging discussion at the board level.  Monte Dube (Proskauer), Dan Grauman (DGA Partners), Michael Irwin (CitiGroup), Kit Kamholz (Kaufman, Hall & Associates), and Jeff Bauer, Ph.D., offer their expertise on the current situation, how mergers and acquisitions differ, the benefits, the M & A process and lessons learned.


Dan Grauman, DGA Partners

The health reform law and the recent economic environment have clearly catalyzed another round of potential hospital consolidations.  It is easiest to say that everyone is talking to everyone right now.


Monte Dube, Proskauer

More and more I’m finding that hospital boards are undertaking the very difficult analysis about whether merging or consolidating with a competitor may ultimately be in the community’s best interest.  To do that requires giving up some control.  But to do so in exchange for enhancing your mission may well be what is in your organization’s best interest.


Michael Irwin, CitiGroup

I encourage trustees to really be honest in their assessment.  You are supposed to recalibrate around the business paradigm as it changes.  You should be vigilant in your board meetings.  You should talk about the long-term consequences of these trends and start early to develop a process in your own mind for when there is a need to move to the next level.  You should have a sense of urgency to protect the organization.


Dan Grauman, DGA Partners

A board should undertake a very rigorous process to determine what is most important to the organization when considering a merger or some type of significant strategic collaboration.  You can even generate a list of the absolute non-negotiables of what you are not willing to give up . . . Get all that down in a very structured way so that you can determine what is non-negotiable.  At the same time, identify what your most critical needs are; for example, access to capital, access to a stronger IT platform, access to other systems and processes that will help improve the clinical operation.  It is an important process for every board to undergo—to delineate those needs, those non-negotiables and identify exactly what it wants to get out of any contemplated merger or acquisition.


Monte Dube, Proskauer

How does a consolidation happen, whether it is a merger of equals between two competing community hospitals or an acquisition of a small hospital by a large one?  Well, every transaction is different.  Sometimes it is necessary in order to break the ice to have board-to-board meetings . . . If the two hospital boards or representatives of the hospital boards—the board chairmen, or board committees—can get to “yes” on what they have in common rather than focus on what differentiates them, then it is much more likely that the lawyers and financial advisors will be able to structure a transaction that will work.


Kit Kamholz, Kaufman, Hall & Associates

As we think about the role of a board, particularly for a larger health system that is considering partnering with a smaller community hospital, it really starts with looking at the strategic plan for the organization.  The board has a critical role in approving the strategic plan and ensuring that any potential partnership that the organization might consider is indeed going to advance the strategic plan and advance the organization in helping it achieve its mission and vision.


As it relates to the actual evaluation and the work that is done to put the partnership together, the board will play a critical role in terms of the interaction with that smaller community board.  Having that dialogue and that discussion and being able to tell the community hospital why its organization is so important to your future is going to be a critical selling element to bring that partnership together.  It also gives the boards an opportunity to gauge the cultural compatibility.  That dialogue and discussion at the board level is critical to ensuring that cultural compatibility exists between the organizations before entering in a partnership.


Michael Irwin, CitiGroup

Here is an example of a lesson learned.  I can’t tell you how many times I have gone into a strategic transaction where I’m representing a health system that is evaluating a community hospital that was very well positioned in the marketplace, but over the last several years has really been challenged, and now is a huge financial drain on itself and any partner that it might take on.  Some health systems will reconsider.  If [the health system] had been able to do something earlier when the community hospital was performing adequately, a transaction might have happened.  So you have to be vigilant, be honest in your assessment and make sure that the dialogue within the organization continues to elevate the need to look at strategic alternatives.


For a complete list of iProtean courses, click here.


iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.


For more information about iProtean, click here.