Think about this: If your management team, your CPA firm, your attorneys or your investment bankers could actually fix a hospital with disintegrating ratios, don't you think they would?
Management usually tells you they can fix it. Sometimes, they believe they can. In other cases, they don't want to lose their jobs by admitting they do not know what to do.
What about your accountants, lawyers and bankers? They have two problems. First, for the individuals representing these firms, you are probably one of their largest clients, and they do not want to lose your business and their jobs.
Second, in their minds, they don't work for the board, they work for management. They hesitate to go over management's heads to the board because this would be tantamount to professional suicide. Here is the bottom line: they may not tell you what is happening until either (a) you figure it out, or (b) it is too late. These two possibilities sometimes occur at the same board meeting.
Of course, you can call in consulting firms, and they might just solve your problem for you. If you are concerned that your hospital may not survive without some substantial improvements in operating performance, you probably should engage one of these firms. But when your ratios start dropping to the levels mentioned previously, you need to start thinking of other options. So who is going to solve this problem? The board of trustees.
If you refuse to think about giving up control of the hospital, you don't have any options. You need to take your chances, hire those consultants, trust in management, your accountants and lawyers, and ride out the storm. After all, what is the worst that can happen? Ever been in Federal Bankruptcy Court when they give you your new title, "Debtor in Possession"?
But if you realize that your hospital, like many others in the country is not going to make it alone, you need to consolidate with another organization through a sale, merger or joint venture. If you figure it out early enough, you may even be the buyer, not the seller.
Identifying your options is easy. Selecting an option is easy. Implementing an option? Well that is rather difficult, and many organizations have failed for lack of experience, or the infamous "merger curse."
The merger curse happens when two hospital CEOs have dinner at a quiet location, usually 20 to 30 miles away from town so they won't be seen. They decide that it would be a great idea to merge because of the potential synergies. The next day, they issue a press release and announce they are merging the hospitals. They are not closing any services, they will have no layoffs, and they are forming the "Office of the Parent" to be housed in the new corporate headquarters furnished with $10,000 Baker desks and Herman Miller chairs. At this point, they have removed every possible benefit of merging, and "cursed" the deal.
The key issue is how to get to the point where YOU the trustee become the decision-maker in the merger process. If you are going to be held accountable for what happens, it is a good idea to direct what happens.
To ensure the survival of your health care organization, you need to take the following steps:
1. Take control of the situation and inform management that they are not in charge of this process.
2. Hire an experienced consultant to help you identify, select and, most importantly, implement the best option., i.e., buy, sell, joint venture, merge or consolidate. This should occur very quickly and can usually be accomplished in a single board meeting.
3. Hire an experienced transaction attorney and an experienced communications firm. Don't use your general counsel or your own public relations department because there's a good chance neither will have experience in these areas and won't be aware of many of the intricacies of hospital mergers and acquisitions. Moreover, by going outside the hospital, you'll avoid the potential of a conflict of interest (i.e., if the merger succeeds, they might lose their jobs).
4. Implement the option you select, and don't let anyone get in your way.
The single issue that stops hundreds of boards from entering into this simple process is that they do not want to give up control of their hospitals. Control is not the main reason that boards hold on until it is too late--it is the only reason.
Think about who has given up control in the past few years, however. Tulane University, George Washington University and Georgetown all gave up control. Catholic Health East sold in Florida. Catholic Health Initiatives sold in Albuquerque, N.M. Ascension sold in Norfolk, Va. Baptist sold in San Antonio. Health Midwest is selling in Kansas City. The list goes on and on. They all sold because they did not think they were going to survive. But the majority waited too long, and thus their ability to provide quality care was greatly compromised.
Board members must learn to recognize the warning signs of a hospital in trouble and determine what you should do before management confirms that you are in trouble. Saying you did not know the ship was going down is not going to help you. That is what the Enron board said.