By Justin Harris
Over the past couple of months, I have visited many of Kentucky’s critical access and small community hospitals to meet with administrators and learn of their challenges in their service areas. They are the few remaining independent hospitals in the state or region. These hospitals and healthcare organizations cannot remain independent from each other. There is resistance.
When hired, the CEO of one remaining hospital said to the board, “If I accept the job, I need your blessing that if the time comes, you are open to an acquisition, merger or joint venture.” The board was standoffish. Mature community members, many of whom had been on the board for years, were initially unwilling to consider the request.
Demise of Independency
The demise of independency is now upon us. Selecting the right partner to proceed in an agreement with is the most important deliberation your facility can make for the community in the next ten years. With many acquisitions and mergers taking place right now in the state of Kentucky, the ones being acquired need to focus on what will be the best decision for the community served in the coming years. Here are a few things that should be at the top of your list:
Culture: 95 percent of the time the cause of a failed merger or acquisition is due solely from the inability of cultures to reorganize and collaborate. The culture is a make-or-break for any organization, healthcare or not. I encourage our clients to allow me and an independent party to spend at least one day at the organization to understand and experience the culture.
Financials: No doubt, financials have to be critiqued, deciphered and critically reviewed by the organization being acquired and the acquirer. Why the one acquiring? Those putting in a proposal have to show that they are financially stable to take over and pay of the hospital being acquired. Questions need to be answered, such as ‘Are they financing through bonds?’ ‘Do they have a stable line of credit with a credible bank?’ and ‘What is their days cash on hand?’ Furthermore, it’s important to review:
- Unbilled accounts receivables days: This can reveal a structured business office and revenue cycle process or oppositely.
- Consolidations measures: Creating a central CBO (central business office) between facilities can reduce multiplicities of jobs and reduce expense costs associated with it. This includes merging HIM and coding departments, purchasing and financing departments.
- Audits: Confirm actual auditors involved in the past audits. Many times, during mergers and acquisitions, the acquiring organization learns that the acquired organization have had audits, but no actual auditors were involved. Therefore, the audit was not completed thoroughly.
Medical Staff: It is necessary to get the buy-in of both medical staffs to ensure services can be conglomerated between providers of both organizations. It is necessary to confirm that the providers are willing to work together to maximize market share and profits to serve both the primary and secondary markets in the most effective and efficient ways. Furthermore, the acquiring organization should review the structure of the provider contracts.
-Justin Harris is a healthcare consultant with Dean Dorton Allen Ford in Louisville, Kentucky.