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2003 Larson Lecture
April 28, 2003
Marriage Counseling for Hospital Mergers
Samuel O. Thier, M.D.
On December 8 and 9, 1993, the Boston papers were filled with the story of the merger of the Massachusetts General Hospital and Brigham and Women’s Hospital. The national press also felt the event worthy of a story or at least a comment. The reactions to the news were decidedly mixed. Staff at the MGH wondered if they were really in enough trouble to need a partner. The Brigham and Women’s staff trusting their leadership more nonetheless feared that they might be absorbed by the older, larger and richer MGH. The other Harvard-affiliated hospitals expressed anger. The Dean of the Harvard Medical School professed ignorance of the plan and played the aggrieved party. Over the next several years, many people who were uninformed but nonetheless certain of their information, indicated that the venture was clearly failing and only a few years later, many of those same people indicated that the venture was too successful.
How could a marriage of two venerable and respected institutions generate so much passion and what are the realities and lessons of their coming together?
First, the background. By the end of the 1980s, Boston’s hospitals were very expensive and they had excess capacity which they nonetheless used. In these problems Boston mirrored the nation. In response to poorly controlled costs, federal and private payors began to push back. One result was the growth of managed cared which expanded more rapidly in Massachusetts than in the nation as a whole. By the end of 1992, the Dean of the Harvard Medical School noting these trends, pulled together five of the affiliated teaching hospitals (MGH, BWH, BI, Deaconess, CMH) to discuss the possibility of a Harvard-wide response. At that time I was at Brandeis and out of the fray. I was asked by the Dean for my opinion about his efforts. I suggested that his plan was not likely to work since getting all five affiliated hospitals to cooperate would be near impossible. I indicated that getting even two of the hospitals to work together would be quite a trick. By mid 1993 leaders of the Brigham and Women’s Hospital and Massachusetts General Hospital reached the same conclusion and decided to see whether the two of them might be able to provide a creative solution to the cost and capacity problems. At this time 20% of the beds at the Massachusetts General and 15% of those at Brigham had already closed. The leaders of these institutions informed the Dean and President of Harvard that they were considering the possibility of merging. I, at Brandeis, was aware of the discussions between the MGH and the Brigham and was certain that the Medical School and the University leadership were also.
For the next six months leaders from the Board, the administration and the medical staff of the two hospitals met and concluded that an arranged marriage made sense.
This was neither a marriage based on love nor a shotgun wedding. Rather the two institutions carefully assessed their positions and agreed to join to form an organization with clearly stated goals and objectives.
Principles of the Merger
- The merger is a partnership of equals.
- Both institutions’ operations will be folded into a new, integrated health care system.
- There will be meaningful professional participation in the governance and operations of the new entity.
- The new entity enthusiastically supports the teaching and research mission of the Harvard Medical School.
- In pursing improved quality of patient care, research, and education through programmatic integration, every effort will be made to respect the interests of all the individuals in the provider community and to implement change as an evolutionary process whenever feasible.
Key Strategic Objectives
- Bring the two organizations together as a single operating entity
- Establish a management team charged with clear responsibility for managing the change elements
- Expand and increase our control over covered lives
-Expand our primary care base
-Build a network
-Build HMO relationships
-Create a contracting entity
- Significantly lower our costs
-Rationalize services, eliminate redundancies
- Coordinate the activities of our physician groups so as to meet patient needs for quality and value in the new integrated health system
- Establish a formidable education/retraining capacity for all employees
- Improve our information management capacities and capitalize on other reengineering opportunities, with a heavy emphasis on improving patient care and cost effectiveness
- Re-design the balance sheet for greater resources and efficiency
- Clarify and reinforce our relationships with the Harvard Medical School and the Harvard Medical Community
In separate retreats the founding institutions produced mission and vision statements that were nearly identical as were their most important values. Thus generating a system mission and vision statement was easy.
Partners is committed to serve the community. We are dedicated to enhancing patient care, teaching and research, and to taking a leadership role as an integrated health care system. We recognize that increasing value and continuously improving quality are essential to maintaining excellence.
Partners is an integrated health system that serves our communities by providing the full range of services from preventive primary care to long-term care. We improve our quality of care and further serve the public at large by pursuing our teaching and research missions. True to our heritage, we seek to attract the best people and to be an international leader in fulfilling our missions. We recognize that increasing value and continuously improving quality are essential to maintaining excellence.
Lesson One. The merger of equals should be based on the belief that both parties will treat each other as equals. They must be clear about their intentions and expectations and they should be able to state them. It is essential that the values deeply held by the partners are at least congruent.
The founding hospitals agreed that they would create an integrated health care system in which they were joined by three to four strategically placed community hospitals and approximately 1,000 primary care physicians throughout eastern Massachusetts providing comprehensive coordinated care to approximately 1.5 million individuals. It was particularly important that this integrated system recognized the important responsibility of the founding institutions as academic institutions conducting world class research and education. The early days were nonetheless difficult with each partner hoping it would not need the other and each jockeying for position. Each hoped the partnership would not last and there was little trust of each other’s motives.
Lesson Two. Mergers have numerous difficulties early on. An unwillingness to confront these problems guarantees failure. A sense of commitment from the leadership to solve these problems is critical.
The first person that Dick Nesson and I hired was Ellen Zane. We asked her to build the physician network which would be the critical community base of our system. How one would build and relate to a network of 1,000 primary care physicians created a great deal of stress and anxiety. Rules of engagement were generated with participation by both founding institutions. These rules addressed the recruitment and distribution of primary care physicians and the relationship of these primary care physicians to both the community and founding hospitals. These rules also addressed provision and coordination of specialty services. Generating the rules was relatively easy. Enforcing them was critical.
Lesson Three. Principles of fairness and equity can be generated. But until trust exists, enforcement is an absolute requirement.
Consolidation of administrative services took place but stepwise over a period of a few years. Eventually all administrative functions were consolidated and provided as services to the entities. Consolidation also occurred at the academic level but also over years not months. Nonetheless research support grew and spontaneous collaboration developed. Major corporate partnerships were centralized and most flourished. Clinical consolidation was hardest but was accomplished in several disciplines, some spontaneously and some by dictate.
Lesson Four. There is a pace at which institutions, programs, and people can be brought together. If that pace is exceeded, it is possible people will be driven apart rather than coming together. The actual pace is a titration unique to each organization.
During the first three to four years the differences between the founding institutions were too often played out in public. But as the network grew, volumes increased at both hospitals with each of them opening beds that they had previously closed. Not only did clinical activity increase but research support grew and merged residency and fellowships flourished. Even philanthropy grew. The improved performance across all three missions of the system dramatically improved morale and more importantly trust. Six monthly retreats of staff and administration reviewed and analyzed data and compared performance to strategic objectives. At least at two year intervals the strategy was reassessed. Changes in strategy were evolutionary not abrupt. Results of performance were constantly and promptly communicated to the system.
STATE RESULTS – REVENUE, RESEARCH, CARE OF POOR, EMPLOYEES
Lesson Five. Keep reality not gossip as the basis for decision-making. Don’t be hidebound strategically, but also avoid a sense that directions are constantly changing.
The increase in trust led to greater sharing of data on quality and safety. Programs to assess and assure quality formed the basis for still more extensive integration.
Lesson Six. With adequate trust and a sense that the system was here to stay, the intellectual energy of a lot of smart people began to be applied creatively. A sense of permanence trumps a sense of commitment.
By the age of six or seven, the Partners System included three to four community hospitals and had completed its buildout of 1,000 primary care physicians. Cooperation and collaboration continued to grow but by that time, two other factors had to be faced. The Balanced Budget Act had made a serious miscalculation of the savings that would be extracted from the provider community and forced many hospitals to operate in the red. In addition, the managed care non-negotiations of the 1990s had wrung capacity out of the system. (Approximately 30% of the beds in Boston closed over that period of time.) It became clear in Massachusetts as well as in much of the rest of the country that given the excessive blow from the Balanced Budget Act that unless there was a serious renegotiation of the payment rates from the insurers, many hospitals and provider groups would fail financially. We felt strongly that while payors might be important to our health care system, providers were essential. We concluded that it was our responsibility to protect the provider community and to be sure that access and quality were protected for the public. We had taken on four community hospitals, three of whom were deeply in the red, and turned their financial performance around. We opened emergency room services across our region when others were closing them. We opened mental health beds when others were retreating from providing those services. We dramatically expanded our commitment to community health centers. With these responsibilities and our academic mission in mind, we undertook negotiations with the payors asking to be paid a reasonable amount for our efforts. We concluded that we would set our price, present it to each of the payors and expect them to pay it or to seek services elsewhere. Despite major concerns on the parts of some of the payors that meeting our demands would stress them financially, in fact they did meet our demands and in fact they did all operate in the black throughout the entire period subsequent to our negotiations. In addition, since many of the other providers in the region had percentage of premium contracts, increases that we were able to obtain improved the payment to the provider community in general. Despite many concerns raised about premium increases in Massachusetts, they were in fact no greater than those in the rest of the country. Arguments that our system was too powerful in our area and that we were therefore driving up the costs must then have implied that we were powerful enough to drive up the cost of health care across the entire country. Of course the other possibility is that the cost of health care as presently organized cannot be afforded at the premiums being charged. Either the premiums must go up or the care must be reorganized.
Furthermore, the cost of caring for the un- and under-insured must be addressed. One of the simplest examples of the irrationality of the approaches to the poor is the failure to recognize the second and third level effects of reducing Medicaid coverage. First, obviously the poor are uncovered and risk having access to care reduced. Second, the savings that the states obtain are truly only half of what they appear be since the state not only reduces its expenditures but by an equal amount reduces revenues guaranteed by the federal government. The providers of care, in order to make up for the shortfalls without reducing care of patients, raise their charges to the remaining payors and since Medicare is unresponsive to these charges, the result is that the premiums to private payors go up disproportionately. Raising taxes to pay for more of Medicaid out of general revenues would distribute the costs more equitably would slow the rise in premiums being absorbed by the corporate sector. In any event, the present system is approaching meltdown and our society must figure out how to pay our health care costs. The provider community has a responsibility to examine the way in which it organizes and delivers the most cost effective, highest quality care. If the care is to be reorganized, we believe that an integrated system providing the right care by the right people at the right place at the right cost is the proper solution.
Our system is also an academically based one and we should also demonstrate that we add value to the research and teaching missions.
Those of us who believe that integrated systems of care are a part of the solution have a responsibility. We must demonstrate that we protect access to care, and that the quality of care we provide is continually improved as is the safety of our patients. We should be willing to define levels of improved clinical performance and document that we are performing better. We should, whenever possible, improve efficiency and control costs. We should be able to show how an integrated health system adds value in all of these areas above what individual entities could do on their own. If we do these things, we should expect the cost of our services to be paid for.
Instead of worrying about the strength of multi-institutional systems, policymakers bereft of creative ideas to solve the looming health care crisis, might use these systems as models of how care can be reorganized to improve quality and access in the most cost effective way