Kaiser Is Acquiring Geisinger. Making These Mistakes Can End Them

Companies across every industry undergo periods of adjustment, which include tapping someone new to steer the organization in a different direction. Changing out the CEO and replacing upper management teams may sometimes be necessary, but when that shift isn’t well-executed, it can exacerbate old problems and create new ones. The reason is simple: those in charge lose sight of – or can’t grasp – the core principles that are necessary for effective leadership, especially in times of transition and turbulence.

Years ago, I participated in a meeting with top executives from various healthcare delivery organizations that became part of a larger health system in the Midwest. We were discussing challenges these leaders were having and trying to solve. They defined the problem as needing assistance in being able to communicate more effectively. But it was hard to get concrete about what the actual problems in communication were. At one point in the discussion, an executive raised her hand and asked if their communication problems had anything to do with the fact that they were all previously separate organizations. After her remark, you could hear a pin drop in the room. And, as the meeting went on, more disparities came to light. As it turns out, these merged hospitals had continued to use their old letterhead and talked about the way they were before in the context of their previous organizations, not even mentioning the new system by name. All of this was still going on–even three years after the acquisitions. The experience that day was stunning as it was instructive to what we are witnessing today in healthcare delivery.

Of the approximately 6,000 U.S. hospitals, only 1,500 remain independently operated. The flurry of mergers and acquisitions (M&A) activity in healthcare delivery only continues to accelerate. Last month alone, there were some 15 M&A transactions. Of particular note, Kaiser Permanente just announced plans to acquire Geisinger Health. The move is part of Kaiser’s larger effort to “expand and accelerate the adoption of value-based care in diverse, multi-payer, multi-provider, community-based health system environments.” It is doing so through Risant Health, a new nonprofit entity created by Kaiser Foundation of Hospitals, of which Geisinger is its first member. While it remains to be seen how this union shakes out, one healthcare CEO commenting on the acquisition said of this kind of activity that “one of the most important things you can do is just have absolute clarity of purpose.” This perspective is spot on.

In any M&A, the marriage of an acquiring and acquired institution brings natural conflict. And as I said in my book, Bringing Value to Healthcare, in the culture of healthcare delivery, where fierce resistance to change at almost every level is profound, conflict is often not welcomed or handled well.

Each entity brings their own organizational cultures and management styles to the table, formed years ago, that reflect the mindset and values of the communities in which they serve. Not infrequently, differences between the acquired and the acquirer, which usually has the dominant culture in the relationship, are wide enough to cause a rift. And if the CEO leading the new organization fails to account for, reconcile and integrate these disparate cultural dynamics and split loyalties, synergies that could have been captured are, sadly, not. Where these challenges get further magnified is in the way most hospitals are run today.

As I said in the book, since hospital departments have traditionally functioned in silos, too often, line management is not actively engaged by administration in making the case for and supporting change – which moves slowly or not at all. Additionally, management structures are optimized for performing technical tasks, not for meeting strategic business challenges, which means managers are likely to lack managerial and financial skills that allow them to drive change through an organization, where the old way of doing business once served them well. Geisinger offers a case study in how integration done poorly is usually doomed to fail.

In 1997, Geisinger Health System and Penn State University’s Hershey Medical Center merged to create what was then one of the largest health systems in Pennsylvania, the Penn State Geisinger Health System. While both organizations were financially stable at the time of integration, the inability to coalesce around a common mission and resolve disparate cultures were predictably just some of the factors that ultimately led to its demise a few short years later.

Dr. Jaan Sidorov, who served as Medical Director at Geisinger Health Plan, concluded in a case study about what went wrong that “leadership failed to convince internal stakeholders of the merits of the merger while management continued with business as usual, allowing duplicative programs to linger.” Of the broader lessons learned, he said: “if the leadership of the new organization fails to deal effectively with the inevitable winners and losers, underestimates the role of cultural differences, does not have the management skills necessary to achieve cost savings and address the operational inefficiencies resulting from a larger clinical enterprise, does not anticipate the distrust of other local health care providers, and fails to anticipate the market forces that determine the success or failure of a managed health care system, mergers can fail.”

All healthcare delivery stakeholders say they want “better health outcomes at lower cost,” and an overwhelming majority of healthcare executives believe population health is the way of the future. But before that journey can even begin, the right leaders and leadership structure must be in place, and they need to clearly articulate with honesty and transparency what the mission is and where the organization is headed. And if things are going to be done differently than before, then they need to help everyone in the organization come to terms with what’s going to change and why. This is fundamentally what’s at the core of executing M&A effectively.

Our consultancy has developed six areas of investigation and diagnosis, which guides all of our assessments. It can be applied across all industries, and we start with some basic questions. Is there a shared understanding of the organization’s mission, care model value, and connection to the community? How are goals communicated and aligned to drive the right behaviors across the organization? What leadership styles are utilized by members of clinical and administrative leadership and how effective are they at engaging the organization to accomplish goals? Also, how is accountability for results assured? If any of these can’t be answered upfront, then it doesn’t matter how beautiful a new hospital facility looks or how great a CEO is at so-called “leading,” the problems and pitfalls that have historically befallen them and other C-suite executives in the past will continue to haunt them like bamboo rods, the roots of which will only get stronger after they are cut down.

As I’ve written previously in this column, U.S. healthcare delivery stands at a crossroads today. Under pressure from payers, employers and consumers, hospitals and health systems are now being held accountable for outcomes in cost and quality across the continuum in ways previously unseen. Holding on to a broken fee-for-service (FFS) model, it has only left them in a financial and operational quagmire. And, struggling to get out, retail disruptors continue their incursions – making primary care more affordable, convenient and attractive like never before.

Failure is not an option for a system in distress and hospitals and health systems that have lost sight of their intended missions. But bringing a new captain on board a sinking ship, just to rearrange the deck chairs, is not the answer. And, if that’s the case – it’s just a cure in search of a disease.