Challenges of Post Merger Integration

March 2017

Luis E. Taveras, Ph.D. Former Senior Vice President & Chief Information Officer

• General Information

• Day-1

• The Role of Information Technology

• Summary

• Q&A

We will discuss the general state of the industry with a focus on how the Information Technology (IT) organization is impacted throughout all the phases of a merger or acquisition.

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General Information

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In 2016, deal making in the US Healthcare sector continued though at a slower pace than prior years.

• 939 Deal – 1.4% decline vs. 2015 – 14 megadeals totaling $42.5B

• 4 less than 2015

• $71.7B deal value – 59.6% decrease vs. 2015

• Long-Term Care was most active sub-sector – 337 deals (36% of deals) – $14.4B (20% of total deals value)

• Physician Medical Group – Largest deal value growth (~385%)

• Rehabilitation – Grew most rapidly

Source: PricewaterhouseCoopers, LLC

Growth in Excellence and Lower Cost of

Care

Growth of Academic Mission & Centers of

Excellence

Operational Effectiveness

Physician Growth, Alignment and Management

Strength & Development of Brand & Reputation

The major drivers for hospital mergers are a search for financial and geographic scale but there are many other underlying goals.

Positive

Organizational

Culture

Receptive &

Responsive

Senior

Management

Effective

Performance

Monitoring

Building and

Maintaining a

Proficient Workforce

Effective

Leaders Across

Organizations

Expertise Drives

Practice

Interdisciplinary

Team Work

All of these goals, along with the overall strategy of the new organization will not be achieved unless there is a focus on culture.

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Operations

Performance Factors

…and it’s not just the system of culture that is seen above the surface but more importantly that which operates below the surface as a series of influencers.

Behaviors

Assumptions

Perceptions

Beliefs

Visible Organizational Culture

“The way we say we get

things done”

“The way we really get things

done”

Influence

rs Polices and Procedures

Traditions Stories

Feelings

Values

Unwritten Rules

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Components for gaining change adoption during the merging of two organizations

If done correctly, mergers and acquisitions can lead to the creation of a new culture that can bolster the organization to high performance levels never achieved by the merging entities.

• Change Management Guiding Principles: – Understand cultural differences between the two

merging organizations – Engage impacted personnel from both systems

(leaders and staff) early in the process – solicit their input

– Different stakeholder groups have different communications needs

– People’s engagement with communications changes over the course of the integration

• Change management must be embedded in the integration approach: – Communications help provide understanding of

the vision for change - “Why it’s important” and “What’s in it for me”

– Change Activities (Team Workshops, Mentoring One-on-One’s, Physician Leadership Councils and Town Halls)

– Training provides necessary skills to succeed

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Training

Programs Communications

Change

Activities

Skills Behaviors

Knowledge

Adoption

Day-1

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• Guiding Principles

• Governance

• Integration Process

• Integration Approach

• Leadership Team

• Planning Process

• Development of Action Plans

• Key Activities Methodology

– Prioritization Schema

• Metrics

At the onset of an affiliation, there are a number of critical topics that must be considered.

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• Clear and measurable success criteria

• Sequencing plans

• Funding and resources

• Key metrics should be tracked and reported on a regular basis

• While groups will need to define the appropriate metrics, some suggestions include: – Financial metrics, such as one time savings, cost avoidance, recurring

savings

– Clinical metrics, such as LOS reduction, quality improvements, lower cost of care, improvements in patient satisfaction, wait times reductions

– Human Resources – turnover, satisfaction, recruitment times

Among the first topics of discussion needs to be how success will be measured.

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After clearly defining success, the new Governance structure must include the creation of an Integration Management Office (IMO) to manage and track the measures of success.

Integration Steering Committee

Organization Culture Strategy Synergies

Work Groups

Supply Chain

Revenue Cycle

IT HR

Business Initiatives

Legal

Fundraising Bus. Dev.

Etc.

Integration Management Office

IMO Oversight

IMO Apprised

Process Benchmarking

& Metrics

SME & Resources

Analytics & Measurement

Charter

Savings Targets

Timeline

Givens

Boundaries

Organization

Operational

Budgets

Low Risk/Impact

Communication

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The Governance Model needs to ensure that all leaders are engaged in identifying the areas of opportunity for improving the effectiveness and efficiency of the combined organization.

Solution Sponsor

Technical Operational Cultural

Executive Sponsor

ESC

Operational – Integrated

Cross-Cultural

Office of Integration

Solution Teams

C-Suite SVPs VP’s

Ass

ess

ment

and D

esi

gn R

eco

mm

endations

Imple

menta

tion D

ecisio

ns

Local Directors

Supervisors Business Unit Leaders

Merged System

Leadership

Local Leadership

These opportunities must be evaluated based on an established collaborative decision making process.

Recommendations are developed

in close coordination with local and

functional leadership at each

operating entity

The decision to implement

and prioritize will be the

responsibility of combined

integrated leadership.

• Identify & Prioritize projects by degree of impact and degree of difficulty

As an example, the key activities that have been identified as the drivers of success can be scored and tracked on a grid in order to provide focus.

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Low Priority

Important but longer

implementation

Opportunistic Quick Hits

High Impact Low Impact

Easy to implement

Difficult to implement

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• PIPELINE – Pending project, not fully vetted but savings may be identified.

• VETTED – Savings have been identified and project has an approved Charter and Investment Summary

• ACTIVE – Project is in progress or launched

$

$XX

The key is to continuously have a funnel of valuable projects in the pipeline.

Example: Supply Chain

Role of Information Technology

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• No organization shall regress as a result of the integration – no reduction in the ability to provide the same or higher level of service.

• Whenever possible, staff will be given the opportunity to retrain in order to acquire the necessary skills to continue to add value and maintain employment.

• The operating environments will be consolidated when operational efficiencies are increased and cost reductions and/or avoidance can be achieved.

• The integration efforts will be undertaken with a primary goal of enhancing our ability to function as an efficient system as well as reaching the financial goals established for the affiliation.

• A business case will be developed for any major project required for integration. The business case must be approved by the Integration Steering Committee prior to making any contractual commitments or assigning

resources.

In information technology, we must define the key principles that guide our actions throughout the integration process.

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IT&S Guiding Principles

Those guiding principles are then applied in the identification of integration projects.

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Information Technology includes an evaluation of the following areas:

• Consolidation of data centers

• Consolidation of servers and networks

• Use of the centralized help desk

• Consolidation of clinical, business and administrative systems

• Consolidation of vendor contracts

• Merge into the tower organizational structure

• Corporate security management

• Biomed/Clinical engineering consolidation

• Desktop strategy

• Printer management consolidation

• Share Project Management Office (PMO)

• Operational processes and tools

• Policies and procedures

• Others

Examples of potentially high yielding IT projects include the unifications of applications along with several operational efficiency initiatives.

• IT must deliver on IT specific projects along with all the other projects that require IT participation

• IT must ensure that the organizations continue to operate while transitioning to a new operating model…IT must be involved in all aspects of decision making

• IT staff must be reassured that they have a key role in the new organization in order to avoid flight risk of critical staff…if necessary, put in place retention bonuses for key employees

• IT must avoid OWNING all projects and focus on serving as an enabler of the integration

• IT must deliver on short term operational projects that are required for the acceleration of the development of a single culture….email, policies and procedures, network consolidation, portals, etc..

In delivering these projects, IT faces several specific challenges that could results in shortcomings if not carefully managed.

Summary

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Integration Key Success Factors

The complexity of all integration efforts must be managed with discipline and focus in order to achieve the objectives of the affiliation.

IT projects, along with all other projects, need to be continuously evaluated and prioritized based on the value they bring to the newly formed organization.

Ensure feasibility of recommendations

Identify risks / mitigation strategies

High

Low

Example Low High Risk

Span of Control

$$

Service Line Rationalization

$$$

Market Share Growth $$$

Physician Alignment

$$

HR Pay Practices

$$

Elimination of duplicate

efforts $$

Supply Chain Physician

Preference Items

$$

Information Technology Integration

$$$

HR Benefits $$$

Vendor consolidation

$$

Supply Chain Consolidation

$$$

Organizational integration

$$

New Governance

structure $$

Eff

ort

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Ensure alignment to organizational strategy

Assign accountability for implementation

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