'Mergers of equals' model gains steam

Although hospital mergers & acquisitions (M&A) are often due to financial need, there are benefits to consolidations of successful organizations as well, according to Becker's Hospital Review.

M&A between hospitals on equal footing with complementary resources and scales give leaders a strong foundation during periods of change, David Jarrard, CEO of Jarrard Phillips Cate & Hancock, a healthcare strategic communications firm based in Brentwood, Tennessee, told Becker's. Sweeping change, he said, is sometimes necessary during a period of prosperity.

M&A between equals, also known as consolidation or founder transactions, differs significantly from standard M&A models where one organization absorbs the other. Rather, the process involves mutual goals and strategic imperatives. Their goal, for example, may be to create a better system of care, according to Jim Blake, managing director of Kaufman Hall, not simply to create a bigger organization.

While participants may not have equal assets or services before the deal, they assume shared, equitable authority in both the process of developing the deal and managing the new system. It is essential that participants see each other as partners even if one is larger or offers more comprehensive services than the other, according to the publication.

The most successful consolidations realize that there are no winners or losers, Jordan Shields, vice president of Juniper Advisory in Chicago, told Becker's. "They have two partners that come together and share a vision for healthcare in their communities--it is a vision for the future that isn't based on their pasts."

One of the biggest challenges to these types of mergers, or even any M&A for that matter, is combining cultures. Organizations must gain a deep understanding of each other's cultures from the very beginning in order to identify potential obstacles. Becker's reports that one example of a "merger of equals" that successfully combined cultures is the January 2012 partnership of Lexington, Kentucky's St. Joseph Health System, part of Catholic Health Initiatives, and Louisville's Jewish Hospital & St. Mary's HealthCare. The combined organization is now known as KentuckyOne Health. 

KentuckyOne addressed concerns about cultural incompatibility early, surveying each participant's employees on which cultural aspects were most important, and using the results to develop a new mission statement, according to the article.

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