What steps should a high-performing but small hospital take to assess a possible partnership or merger; should the board bring in a consultant or do this on its own? How can a public hospital secure needed capital when its city owner is disinterested at best, obstructionist at worst? How can a hospital secure the loyalty of its medical staff? How should a board approach the issues surrounding physician compensation?
iProtean Symposium attendees posed these questions to a panel of experts that included Barry Bader (Bader & Associates), Marian Jennings (M. Jennings Consulting), Dan Grauman (DGA Partners) and Brian Wong, M.D (The Bedside Trust). The answers were specific, targeted and in some cases, personal. We provide brief excerpts from their answers below.
Question: A mid-sized hospital has weathered the recession and is now doing well financially, but the difficulties of the recession years concern the board, and it’s not convinced the hospital can withstand a future crisis. What are the warning signs that will alert the board of the need for a merger or affiliation?
Marian Jennings recommended the board do the following: 1) develop a five-year financial forecast—not a doom and gloom assessment, not a best-case scenario, but a realistic assessment of the future; 2) build a sensitivity analysis with trigger points that gives the board and management specific indicators where alternate actions should be contemplated; 3) establish as clearly as it can why it wants to partner with another organization—it’s important to focus on the “why” and not on the “how” at this stage; 4) be proactive in investigating merger/affiliation models and potential partners. It is better to be proactive than to wait, she noted.
Dan Grauman noted the importance of an “independence assessment” (see iProtean blog Mergers & Acquisitions Dashboards, November 6, 2012).
Question: When considering whether we should merge or affiliate with another organization, should we use a consultant or should we do this ourselves?
Barry Bader said boards should definitely bring in a consultant to assist them in this process. “You can’t facilitate the process and also be a part of the process,” he noted, but added that you may want to bring in someone who works on a professional fee basis, not “percentage of the deal.”
Dan Grauman noted that this is a tricky and complex area. Some large consulting firms and investment bankers get a success fee when the deal goes through. That is completely different from assessing whether or with whom an organization should merge. Sometimes the large firms are the right choice; for example, when a hospital board has agreed to sell the organization, and clearly understands the implications of a sale.
Question: A public critical access hospital with a long-term care wing/clinic needs a new facility. It has no debt and is doing well financially, but receives no financial support from the city. What can the board do to get financial support from the city for building the needed facility?
Barry Bader noted that given the lack of political support, the board should focus on the financial and strategic aspects of this dilemma. He suggested that the board take this outside the political process by 1) identifying support on the City Council; and 2) forming a joint study committee that includes those City Council members and also members of the community. The committee should assess three options and the impact of those options on the community: status quo (i.e., do nothing), convert to 501(c)(3) and merge with another organization, or issue debt for a new facility. He noted the importance of an objective assessment and building consensus.
Question: We’re doing well, but want to keep on doing well and are worried about the loyalty of the medical staff. How can we can keep the loyalty of the physicians and continue to provide services that are valuable to them?
Barry Bader said it’s not enough to ask the chief of staff to bring medical staff concerns/issues to the board. He suggested that the board instruct management to commission a medical staff needs assessment, and that the assessment be conducted by someone outside the organization who would conduct a series of interviews with the physicians. “You may be surprised by what you learn,” he noted. In addition to identifying areas where the physicians say they are well served by the hospital and areas that need improvement, the assessment should also identify negative aspects of the physicians workplace that the hospital cannot address. In these cases, educating physicians about the constraints the hospital faces will be helpful.
Question: How should the board approach the issues surrounding physician and executive compensation?
Dan Grauman emphasized that the board should adopt a physician compensation policy that provides guidelines to management as they pursue employment arrangements. The guidelines need some specificity; e.g., not to exceed the 75th percentile unless an exception is merited. For exceptions, other criteria must be detailed and the consideration must go to the board compensation committee for a final decision. The board may want to seek outside help when developing its physician compensation policy.
Mr. Grauman noted that if you currently have employed physicians who were hired at a time that the board did not have a compensation policy, it is important to retroactively apply the elements of the policy to those “existing legacy deals.” Many of the existing contractual arrangements were agreed to at a time when there was less federal scrutiny, and they may now be problematic. “These are difficult discussions but you may have to undo one or more deals, and it’s a “Pandora’s Box” of problems—but they must be addressed,” he said.
Barry Bader added that the considerations surrounding physician and executive compensation are much the same. A strong compensation philosophy and policy must be grounded in the needs of the organization and appropriate market studies to match the organization’s needs. The board must do its job by establishing both the physician and executive compensation policies. It should designate independent board members to evaluate compensation for the chief executive and for those physicians who merit exceptions.
Each of the iProtean experts addresses these questions in more detail in the upcoming advanced course additions to the iProtean library of courses. We have added Nate Kaufman and Susan Douglass to our list of experts. Look for both Nate and Susan in the upcoming course Developing an Employed Physician Strategy and Physician Compensation.
For a complete list of iProtean courses, click here.