Transformational Change – Healthcare Mega-Mergers

Last December, shortly before Christmas, I learned that I and my work colleagues would soon be experiencing “transformational change.”

That’s right, friends… not normal or conventional change, but change that transforms.

“What’s the difference?” you ask.

Have a look at this table for a quick explanation:

When Does Transformational Change Occur?

In the business world, transformational change occurs when a company makes a radical about-face in its business model, a move that often requires changes in company structure, culture and management.

Companies may undergo transformational change in response to crisis, or in order to reposition themselves in the market. Transformational change also occurs in response to changes in technology, or, as companies adapt to take advantage of new business models.  These same transformational change dynamics work in healthcare as well.

Transformational Change – Healthcare Mega-Mergers

• In December 2017, my employer, Ascension Health, and Providence St. Joseph Health – both nonprofits – entered into talks that would create the largest U.S. hospital conglomerate in U.S. history. The new operation would have unprecedented reach – with 191 hospitals, in 27 states, and an annual revenue of $44.8 billion, based on the most recent fiscal year.  This would surpass the nation’s largest, pure hospital operator, HCA Healthcare Inc., which owns 177 hospitals, and ended 2016 with $41.5 billion in revenue.
• The same month, December 2017, Aurora Health Care announced plans to merge with Advocate Health Care, the largest health system in Illinois, to form a new organization that will be the 10th largest, not-for-profit health care system in the U.S.
• At roughly the same time, and expected to close in the second half of 2018, Dignity Health and Catholic Health Initiatives (CHI) announced a merger that will create one of the nation’s largest nonprofit health systems, bringing together 139 hospitals across 28 states, with $28.4 billion in revenue.

According to press releases for all three mega-mergers, the moves represent “an incredible opportunity to expand each organization’s best practices … and deliver high-quality, cost-effective care.”

Opposing Argument

But not so fast…

Robert Pearl, M.D., is one of Modern Healthcare’s 50 Most Influential Physician Leaders and author of the bestselling book, Mistreated: Why We Think We’re Getting Good Healthcare—And Why We’re Usually Wrong, contends that these mega-mergers will fail miserably.

“What qualifies Dr. Pearl”, you ask?

Well, Dr. Pearl previously served as CEO of The Permanente Medical Group, the largest medical group in the nation.  In this role, Dr. Pearl was responsible for 9,000 physicians, 35,000 staff, and the medical care of 4 million Americans on both the west and east coasts.

He is a board-certified plastic and reconstructive surgeon, a clinical professor of surgery at Stanford University, and is on the faculty of the Stanford Graduate School of Business.

Dr. Pearl authors an ongoing series of articles in Forbes magazine that examines the rising struggles of U.S. hospitals, along with solutions for improving their performance.  His article, Saving America’s Hospitals: Why Recent Mega-mergers Will Fail, articulates his informative argument against them.

What are your thoughts on the matter?  Are the healthcare mega-mergers transformational changes that will be successful? Or are they destined to be misguided failures?  Is your organization undergoing a transformational change as well?

In a future post, I’ll share a Healthcare Transformational Change Model that illustrates how healthcare organizations move from short-term performance improvements to sustained, organization-wide patient care improvements.

Stay tuned.