How CIOs can better manage change in a merger
The number of hospital mergers has risen steadily since enactment of the Affordable Care Act. A recent survey reported that 38 percent of healthcare executives still foresee mergers for their organizations.
Hospitals merge to consolidate, obtain price leverage, integrate care across larger patient pools and invest in systems to manage risk. Each of these goals is achieved through system improvements. CIOs are on point for success of these merged networks.
Cost efficiencies are often at the top of the list of merger goals. According to a study by Charles River Associates, hospital mergers reduce cost an average of 2.5 percent. Cost savings can come from purchasing leverage, administrative efficiencies, clinical integration and process, and rationalizing redundant services, such as warehousing.
IT is a foundation to support all of these potential savings. For example, hospitals may have just finished implementing an EHR, and now the merged institution must integrate or replace their respective records systems.
The CIO involved in a hospital merger today faces two unfamiliar challenges. First, merger success depends on building a new unified culture. Mergers must overcome the pride and loyalty that merging hospitals have encouraged—in some cases, over many years. Robin Norman, CFO at Virginia Hospital Center, says, “There are three main priorities in a merger: culture, how to sum the parts, and execution.”
CIOs are skilled at execution, but sometimes have less experience with building new culture. Tim Brown, chief business information officer at Infor, has watched many mergers from the perspective of a software executive, and says, “CIOs need to be working with the C-suite from the beginning. They need to be part of driving culture change.”
A hospital is a social institution. In Boston, several venerable institutions recently signed an agreement to merge, including Beth Israel Deaconess, Lahey Health, Mount Auburn, New England Baptist and Anna Jaques Hospital. This could be a challenge similar to merging the Red Sox and the Yankees, Microsoft and Oracle, or Cerner and Epic. The people who work for these hospitals have learned to use their IT systems in a manner that reflects deep-seated views of how to care for patients. Technology projects related to implementing mergers can either build up or tear down an emerging unified culture.
Beyond building a unifying culture, the CIO must help the merged organization culturally embrace business model innovation. A business model is the hospital’s unique combination of customer value propositions, profit models, processes and resources. Clayton Christiansen has a simple version of the healthcare customer value proposition: “Find out what is wrong with me, fix it and keep me healthy.”
Achieving patient value will require the merged hospital system to implement IT systems that integrate data to manage patient outcomes. For example, Kevin Tadd, CEO of Beth Israel Deaconess Medical Center, talks of “investing to decrease patient revenue.” Historically, hospitals’ profit models have depended on fee-for-service revenues paid largely by third party payers. Going forward, revenue will be tied to quality and outcome metrics, and taking on financial risk of patient treatment through ACOs. Historically, hospital processes have been built around silos tied to clinical and diagnostic specialties. Going forward, both administrative and clinical processes will increasingly integrate across hospitals and into the community.
Hospitals have tended to acquire their own resources. As a result, US hospitals own nearly three times as many CT scanners per million population as Canadian hospitals. After the mergers, these and other types of high-dollar resources will be increasingly shared within the networks.
The art of successfully introducing major culture change has been bedeviling managers for years. Elisabeth Kübler-Ross identified the classic stages that terminal patients go through as they grown to accept their impending death—these include denial, anger, bargaining, depression, testing and eventually acceptance. Executives in merging hospitals go through a similar set of emotional responses.
Rosabeth Moss Kantor offered 10 reasons why people resist major change like mergers—among these are loss of control, uncertainty, surprises, loss of routine, loss of face, concerns about competence, fear that the change will lead to more work, history of past failures, and real concerns about the plans.
Paul Strebel describes the importance of developing a “personal compact” between individuals and the organization. Major change such as a merger can clash with long-held loyalty and commitment to established cultural norms of the hospitals that are combining.
Paul Lawrence showed how participation is important—but only if it is meaningful. He talked about how potentially ineffective a well-meaning staff person (such as a CIO) can be by using participation in an insincere manner. In addition, Richard Boyatzis observes that people need to embrace change as part of their personal world view. They need to have hope that the change will be better for them personally. CIOs cannot hope to help lead a successful merger unless embrace and address these aspects of people (or social) resistance.
Thus, changing culture presents an opportunity for the CIO to be more than the chief technologist. Brown points out that, “CIOs need to drive culture change.” CIOs working to retool systems must consider that a hospital is more than a facility with great technology. The CIO whose first involvement in a merger is,”to ’come up with the IT numbers for a meeting tomorrow’ is in big trouble,” says Brown.
The CIO who uses systems changes to successfully drive culture change in the new hospital system will follow these six rules:
1. Start early. The CIO needs to be at the table during merger discussions, helping to plan the goals.
2. Plan culture. As part of the C-suite, the CIO must help make plans for building a unified culture. The merging hospitals have spent many years differentiating themselves. Changing culture requires far more effort and diligence than implementing software.
3. Develop personal compacts. Each and every individual must go through the death or their beloved employer and fall in love with the new one. Success will require that clinicians and administrators from all merging hospitals participate in the “why” part of designing IT changes, not merely be asked to be part of the “how.”
4. Build hope. Every individual in the merged system will fear adverse impact on his or her personal well-being. The CIO can conduct system changes in a manner so that they help individuals involved to build confidence that the new way of doing business will benefit them personally.
5. Be honest. Culture is built on trust. If the merger will involve “staff rationalization,” say so. Make organization and leadership changes early. Prune those who will detract from building unified culture.
6. Organize for integrated care. The merger healthcare system is being created to build a more solid foundation to thrive through a period of sea-change in healthcare. The merged system should be organized to reflect care integration and moving care into the community.
Many CIOs are still suffering through the pain of implementing EHRs. However, the EHR is only a minor tweak of existing culture compared with integrating financial and clinical patient care information across several existing hospitals. In the merged network, every individual will need to re-think his or her job responsibility.
The CIO can lead IT projects in a manner that supports this need…or can merely “train” people on the new tools, as if people were the same as software. The CIO sets the tone and direction guiding how merger-related IT projects will help build a unified culture of business model innovation. CIOs who do it well are part of moving the merged hospitals toward thriving in the new healthcare world. CIOs who limit their thinking to the steps of traditional lifecycle management doom their projects.