ORGANIZATIONAL CULTURE - HOSPITAL MERGER

Organizational Culture - Hospital Merger

Organizational Culture - Hospital Merger

Introduction

Between 1980 and 2002 there were an unprecedented number of healthcare mergers and acquisitions in the United States, affecting hospitals and hospital systems, nursing facilities, clinics, physician group practices, pharmaceutical manufacturers, and managed-care and other health insurance providers. Predictably, this headlong rush toward consolidation and concentration has triggered increased scrutiny of such transactions by those state and federal agencies responsible for antitrust and tax regulation. It has also spurred increased reflection on the ethical issues at stake in these merger and acquisition decisions. Such issues include concerns about fidelity to organizational mission; effects of organizational restructuring upon community access to services and other benefits; impact upon the welfare, working environment, and overall culture of affected employees; and the prevention and resolution of conflicts of interest among involved parties (Hall, 2000).

The number and frequency of hospital mergers and acquisitions increased dramatically during the 1980s and early 1990s. The trend peaked in the period 1994-1997, according to data from Irving Levin Associates, with 163 deals completed in 1996 and a record 197 deals in 1997. During that period the number of hospitals belonging to health networks or systems also increased significantly, from 56.2 percent in 1994 to 70.9 percent in 1998. By the beginning of the new century, the frequency of deals had declined somewhat, to 86 in 2000 and 83 in 2001, yet these numbers remain much higher than pre-1990 levels. Among the factors apparently driving this high rate of merger and acquisition activity are reduced Medicare reimbursement rates, significantly increased managed-care pressures to provide more services at lower prices, and a declining market for inpatient hospital services (Bazzoli, et al, 2002).

Benefits and Burdens of Consolidation

Hospital mergers and acquisitions can provide substantial benefits for institutions, their employees, and the communities they serve. They can bring needed capital into a healthcare organization, providing economic vigor and repositioning in a difficult marketplace; offering opportunities for new or expanded service lines; and even ensuring survival and the capacity to provide services to those in need. They can strengthen an organization's bargaining power and provide economies of scale and increased efficiency, all of which could lead to decreased costs to consumers. And they can bring standardization to, and better assessment of, the quality of care delivered (Hofmann, 2000).

A 2002 study by Bazzoli and colleagues examined the self-reported reasons for merger cited by involved hospitals during the periods 1983-1988 and 1989-1996. For both groups, the top three reasons for merger were identical: to strengthen the institution's financial position, to achieve operating economies, and to consolidate services. Expansion of market share was another reason cited by a majority of respondents. Yet there were also certain changes in emphasis between the two study periods. Those citing expansion of visibility and service availability across the hospital's service area as a significant reason for merger increased from 33.3 percent in 1983-1988 to 53.2 percent in 1989-1996, while those citing expansion of provided service areas as a reason for merger ...