Childrens Healthcare of Atlanta Case Study

Childrens Healthcare of Atlanta Case Study ORDER NOW FOR CUSTOMIZED AND ORIGINAL ESSAY PAPERS ON Childrens Healthcare of Atlanta Case Study I am seeking your analysis of two cases, both about hospital mergers. Please contrast and compare the two, assessing what was similar and what was different and how each contributed to the success or lack of success of the mergers and further hospital operations. Childrens Healthcare of Atlanta Case Study Hospital mergers are one of the major themes in the industry at this time, and understanding these two cases will give great insight into the role of management in successfully implementing the integration of two organizations. THIS WILL ALSO REQUIRE I PASSWORD TO READ TWO OF THESE CASES AND COMPARE AND CONTRAST THEM. Childrens Healthcare of Atlanta Case Study atl_case_study.pdf Against All Odds: The Successful Hospital Merger that Formed Children’s Healthcare of Atlanta “What do we all have in common?” Introduction James Tally, the then newly appointed CEO of Children’s Healthcare of Atlanta, had 26 years of experience in healthcare administration in both academic medicine and private practice. Tally was known for his transparent leadership, strategic planning and passionate drive to create relationships within the organization. His appointment as CEO brought unease as concerns arose regarding the nature of the merger and whether it would be one of equals. He found himself overwhelmed with the task of integrating Scottish Rite Children’s Medical Center and Egleston Children’s Health Care System, two pediatric hospitals with a long tradition of competition. Tally questioned his ability to complete his inaugural merger while accomplishing both financial synergies and creating a unified culture. Tally held countless meetings with the stakeholders in an attempt to gain support for the new organization and justify the abundance of changes brought upon on the employees, patients and community. Shortly after the merger was announced publicly, Tally sat down with the new Children’s Healthcare of Atlanta board. The new board comprised of members from both hospitals in hopes of gaining their mutual support. While many board members had a supportive view of the merger, Tally faced opposition as to how to structure this new entity and merge two groups that experienced a discontinuity of opinions. Discussions broke out on how to create a cohesive culture and create efficiencies to make a better organization, but this only exacerbated the problem as more opinions were shared and no course of action could be decided upon. It became very clear that the two hospitals had fundamentally different philosophies and histories ingrained in the respective organizations that would be difficult to merge. Tally began to question if the two hospitals would ever overcome their differences for the common good. © 2012 by the Georgia Tech Research Corporation. This case was prepared by Professor William J. Todd and Kristin Watkins, Scheller College of Business, Georgia Tech. Cases are developed solely as the basis for class discussion. Childrens Healthcare of Atlanta Case Study Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. 1 Tally sat at the board table patiently listening to the discussions and feedback, trying to unify these leaders. As time progressed, Tally noticed that progress and decisions regarding how to move forward with the merger were not being made as the two sides were not ready to compromise. He stood up, and in a caring tone voiced to the board, “We are here for the kids.” This phrase resonated so well with those involved in the merger that it became a sort of battle cry for Tally whenever conflict arose. The board was there for the betterment of the children, but this fact required reiteration from time to time as a reminder that the details were insignificant with respect to the bigger picture. Tally felt at ease that there was hope that those involved in the merger could see his vision. Feeling that there was sense of support, he began to focus on the changes in the organization that would have to occur for the merger to be deemed a success. The Environment From 1994 to 1997, the number of not-for-profit hospital mergers and acquisitions in the United States increased fivefold.1 Hospital consolidation during this period was driven by the assumptions that: 1. Hospitals needed to join integrated healthcare systems or risk losing patients to larger providers. 2. Hospitals could achieve major economies of scale by rationalizing capacity and consolidating functions such as information technology and purchasing. 3. Hospitals would be better able to negotiate with other players in the vertical chain, such as payers and physicians, if they could create scale based structural advantages.2 McKinsey & Company conducted a study from 1984 to 1998 analyzing 300 hospital mergers and discovered that, “the economic advantages local hospital networks were expected to derive from consolidation have largely eluded them.”3 Of the chief executives involved in these mergers, 75% indicated that the results of the merger failed to live up to expectations. History of Hospitals Scottish Rite Scottish Rite opened in 1915 about six miles east of Atlanta in the Oakhurst area of Decatur. The hospital was unlike any other hospital in the Southeast at the time. It was a place where children could recover after surgery regardless of their family’s financial standing. For this reason, funding was a constant focus of the hospital in order to ensure sustainability. The hospital grew to 165 beds and more than 2,000 employees in 1997 and was now a comprehensive pediatric care center. Thousands of volunteers supported Scottish Rite and developed an allegiance to the hospital. Scottish Rite had a private practice orientation and was affiliated with private physicians. Childrens Healthcare of Atlanta Case Study From this standpoint, the hospital operated as an effective business with an economic and financial mindset. Physicians were highly involved in management and governance. 1 Joanne M. Todd, “The Trouble with Mergers: Why are so many nonprofit hospital partnerships crumbling?” Healthcare Business, Sept./Oct. 1999. 2 Grace Col?n, Ajay Gupta, and Paul Mango, “M&A Malpractice,” The McKinsey Quarterly, 1999, Number 1. 3 Ibid. 2 Egleston Thomas Robert Egleston, a colonel in the Confederate Army, had lost four of his five children to childhood diseases. His only surviving son left a provision in his will to create a children’s hospital providing $100,000 for its construction and $12,500 each year in support. This was the largest single gift given to a nonsectarian charity in Atlanta at that time. In 1928 Egleston opened with a total of 52 beds and eight private rooms. Strong relationships with the Atlanta community and foundations allowed Egleston to grow quickly and gain market share. Egleston aligned itself with Emory University and was staffed primarily with Emory physicians. The hospitals physicians were generally focused on patient care, research and teaching. Egleston believed that management and the board should be left to run the hospital while the physicians exercised their medical knowledge. Leading Up to the Merger Financial Position Weakening Healthcare economics in the 1990s posed a threat to the financial viability of charity hospitals. Egleston and Scottish Rite developed a dependency on revenue generating patients to balance their obligation to serve all patients irrespective of their financial position. Technological advancements and more sophisticated service offerings were changing the dynamics of the hospitals. From 1990 to 2000, the average length of stay by patients under the age of 18 had shortened by 10%.4 From 1987 to 1997 the percentage of fee-for-service patients dropped to 15% from over 60%. The shift towards a greater number of Medicaid and managed care patients meant that the hospitals saw a decline in the percentage of billed charges being collected (Exhibit 1). While these trends were beneficial for patients, they disrupted the business models of Scottish Rite and Egleston. The declining bottom lines of these respective hospitals brought into question the viability of their operations moving forward. In response to managed care organizations taking a larger share of the payment mix, both Egleston and Scottish Rite began to negotiate for exclusive insurance contracts. The companies identified the struggle for the hospitals to maintain profitability and took this situation as an opportunity to negotiate payment terms that were in the best interest of their company. These forces left both hospitals concerned with their ability to operate over the long term. Competition among Hospitals As the two hospitals aimed to increase their market share and presence in the Atlanta area, competition between Egleston and Scottish Rite developed. The dynamics of the healthcare industry were drastically changing. Although both hospitals sought to provide sound medical care to children in the Atlanta community, downward pressure on margins in conjunction with reliance on philanthropic capital led to intense competition. Childrens Healthcare of Atlanta Case Study A combination of expensive marketing campaigns and unnecessary satellite networks took a toll on the limited financial capacity of each hospital. The battle for patients had the potential to be detrimental for either or both of the hospitals in the long term. 4 “Remembering the Bullpups!,” The Atlanta Journal Constitution, Nov. 19, 2006. 3 Trustees of the Egleston and Scottish Rite grew uneasy with the pressing situation as many board meetings revolved around competition for patient loyalty and marketing tactics. This took the hospitals away from their goal of improving the lives of sick and injured children. Joe Rogers served as an Egleston board member and chief executive officer of Waffle House during this period. In an interview, Rogers remarked that, “I was friendlier with my competitors in the food service business than the leaders of these two charitable children’s hospitals were with one another.” It became clear that this competition was hindering the hospitals from achieving their goal of aiding sick children. Philanthropic Community Pushback The combination of changing healthcare economics and unhealthy competition between Scottish Rite and Egleston caused donors, physicians and parents to grow frustrated with the system. The community had a significant investment in these two hospitals and believed their competitive actions were detrimental to the community. Parents showed a clear preference for pediatric hospitals over general hospitals. This is highlighted by the fact that 45 out of every 100 children in metro Atlanta were taken to one of the two organizations. The competition between the two hospitals posed a threat to both Scottish Rite and Egleston if they betrayed the confidence that parents had entrusted in them. Physicians grew increasingly frustrated with the current system and began to question whether they were providing the best possible care for their patients. Egleston and Scottish Rite developed Physician Hospital Organizations and pressured pediatricians to pick sides. The concern was that by belonging to one, a pediatrician had to refer patients to specialists within that system. Pediatricians on the other hand, were far less concerned with allegiance to an organization, and wished instead to focus their efforts on the best interests of their patients. This dilemma created frustration between hospital management and physicians. Donations from the community and foundations were instrumental in allowing these hospitals to thrive and grow over the years. Both hospitals received significant funding from the Robert W. Woodruff Foundation, Joseph B. Whitehead Foundation, and the Lettie Pate Evans Foundation. The foundations began to step in and indicate that enough was enough, pushing for the intense competition to cease. Childrens Healthcare of Atlanta Case Study Duplicative marketing and other expenditures were not in the best interest of the Atlanta community. Scottish Rite and Egleston were at risk of damaging their relationships with the foundations that they relied upon for funding. Merger Strategic Options Pressure from the community and financial uncertainty left both Scottish Rite and Egleston with a limited number of strategic options: continue with current operations, collaborate with an adult hospital, develop alliances with other hospitals or merge with another children’s hospital. Both hospitals looked into these options in an attempt to identify the best opportunity from a business perspective that would also benefit the community at large. In evaluating prospective mergers, three factors must be considered regarding the degree of organizational resistance: relationships between physicians and hospitals; the assets, governance, and leadership of the hospitals; and the drivers of performance.2 4 Egleston and Scottish Rite had clinics at a number of community hospitals and quickly saw that a merger with one of these organizations was not in their best interest. They found a lack of commitment to pediatrics in these clinics as this service line consisted of roughly 10% of the community hospital. Tally and CFO Donna Hyland visited the leadership teams on behalf of Scottish Rite to discuss joining a large hospital alliance; however it became clear that an alliance would not add the most value. Fundamentally, adult hospitals and pediatrics have two differing roles and their viewpoints do not inherently converge. Leadership from Scottish Rite was not convinced that an alliance would create the necessary efficiencies, as many hospitals had failed to do. The number of hospital mergers and alliances in the US, in response to the expansion of managed care systems, has hindered hospital prices and utilization rate. Multihospital systems may not outperform independent hospitals, however, due to their limited ability to capture economies of scale, falling demand and excess capacity, and high relative fixed-cost structures.5 Merger talks began in 1996 as Egleston and Scottish Rite realized that the current financial situation was not sustainable and the other options were not appealing or in the best interest of the community. Guiding Principles Trustees took note of the financial positions of the hospitals as well as the philanthropic pushback and began to look for common ground for further merger discussions. Members of Scottish Rite and Egleston boards met to speak about the possibility of a merger between the two pediatric hospitals. Each hospital was concerned with the perceptions and tactics of the other. The merger was built upon three fundamental principles: 1. Sick and injured children are better off in a pediatric hospital than on a pediatric floor of an adult hospital. 2. Egleston and Scottish Rite belong to the community, not the board of trustees. 3. Specialized pediatric care in a children’s hospital is a precious community asset that must be preserved. The development of these principles provided a justification for the merger and allowed people to align their ideals and move away from the rivalry. It allowed for the creation of a common ground for merger discussions moving forward. Throughout the integration of the hospitals, these principles were used to make decisions and push the hospitals in the right direction. Intent and Efficiency Study On August 8, 1997, Inman Allen and Richard Hiller, respective chairs of the two hospitals, signed a memorandum of intent (MOI) for the hospitals to merge. It began by identifying the common mission of the organization as serving “the pediatric healthcare needs of the Atlanta metropolitan area and surrounding region.” 5 Milt Gillespie and Aileen Lee, “Building hospital market power through horizontal integration – is it working?,” The McKinsey Quarterly, 1996. 5 Both sides saw the benefit the combination would have on the community through: “Assuring the availability of high quality clinical services and facilities with a sound fiscal foundation; stabilizing or lowering the cost of care by avoiding duplicate investment in expensive technology and facilities, reducing the cost of capital, better deploying excess capacity and other measures; providing healthcare in a cost effective manner under a variety of managed care arrangements; and integrating research, training, information technology and academic medicine to realize the full value of affiliation with an academic institution.” The MOI had an expiration date of less than 90 days after signing due to concerns that opposition to the merger might cause significant interference. A consultant was hired to identify possible cost savings and synergies of merging Scottish Rite and Egleston. The consultant worked with management as data was collected, reviewed and analyzed. Total annual operating expense savings were estimated to be between $26.1 and 30.6 million in five years. Cost savings were identified from the consolidation of administrative, marketing, physician, and education services; unification of financial functions, consolidation of support services, coordination of hospital based patient care services; reconfiguration of ambulatory delivery (Exhibit 2). These synergies, if achieved would help the merged hospital to mitigate the effects of declining margins and ultimately provide a higher level of care for children. Structural Changes in Team and Board The chairmen of Egleston and Scottish Rite prepared a slate of trustees for the new board. A provision in the MOI indicated that the board would consist of ten trustees from each hospital, three external members, a chair approved by both boards, the medical directors from Scottish Rite and Egleston as well as the CEO (Exhibit 3). Those trustees who were truly committed and dedicated to the hospitals were those that stayed on the new board, which led to a board that was ambitious and heavily involved in the integration of the hospitals into one new entity. After its creation, the board was tasked with choosing a CEO. An international executive search and leadership consulting firm was hired to help identify a CEO. Both Tally and Alan Gayer, respective chief executive officers of their hospitals, were encouraged to apply. Gayer served 17 years at a top management consulting firm and was CEO of Egleston for eight years. He was known for his focus on strategy and strong analytical decision making skills. The new CEO would have significant recourse on the result of the merger as Tally and Gayer had different goals and leadership styles. External candidates were considered, however the committee identified Tally as the best candidate for CEO. This choice was met with apprehension and concern by Egleston on whether Tally would promote the unification as a merger of equals or show preference toward the Scottish Rite tendencies. Tally’s selection had to be approved by the board before it would go into effect. Larry Gellerstedt III, chair of the new board, recalled after the merger, “We saw Jim Tally as especially strong on the administrative side with communicating with the board and the physicians groups. We knew that success or failure would be determined in the first five years, and would depend on blending cultures, blending medical staffs and physicians, and doing it all in a way that the volunteers and the community felt was 6 right. Everything was complicated, and we believed Tally would be good at playing a statesman-like role.” Upon appointment of CEO, Tally spent ten weeks building a leadership team and attempting to create unity and understanding between Egleston and Scottish Rite (Exhibit 4). Tally wanted to speak to the employees at Egleston and used forums as a way for the other side to get to know him. He was overcome with anxiety and nerves as he was asking the opposition to accept him as their new leader. This would be Tally’s first merger and his aptitude of such matters had yet to be tested. He took these meetings as an opportunity to listen and try to understand the needs of the employees. Gayer, made an effort to endorse Tally throughout these meetings, however there was still a great deal of skepticism and uncertainty at this time. At this point, uncertainty was building and people began to question their place in the hospital. Tally wanted to eliminate as much of this ambiguity as early as possible. He had thought about defining senior positions prior to his selection, so he quickly brought on a recruiting firm to develop descriptions for the positions. The executive committee approved Tally’s organizational chart, and he quickly began interviewing both in … Get a 10 % discount on an order above $ 100 Use the following coupon code : NURSING10

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