Casey NolanAs a result of the combined measures in the Affordable Care Act (ACA) and ongoing market pressures, a shift has occurred from independent islands of health care to interdependent physician-hospital care coordination. This shift has accelerated the process of consolidating physician practices within hospital systems. 

Given the increasing financial pressures on independent and small physician practices, the motivation to integrate is strong and the trend towards physician hospital consolidation is accelerating. 

Of course, these imperatives do not in themselves define a successful physician-hospital combination. The real challenge is alignment. There are lots of employed physicians who are not aligned with their hospitals, and similarly, there are lots of independent physicians who are tightly aligned with their hospitals. The key to alignment is cultural alignment as much as it is financial incentives. In fact, transactions that do not return value are inevitably those that did not pay enough attention to cultural due diligence along with financial and legal due diligence. The biggest challenges lie in bringing medical staff and the rest of the merged team together, and not sharing best processes can exacerbate the challenges. Consolidation cannot be done to or for physicians—it must be done with them, demonstrating the savings and quality improvement that can come from consolidation. 

There is also increased attention to dealing with the aggressive efforts of regulators—such as the Federal Trade Commission—to challenge acquisitions on the basis that they may be anticompetitive. Health systems are learning to clearly demonstrate that combinations promote more efficient and cost-effective service, while at the same time improving patient care and outcomes.

Cultural due diligence is not necessarily something most physicians or hospital executives are familiar or comfortable with. Although a number of “tools” exist to assess cultural compatibility, at the end of the day, cultural alignment is a bit like the old Supreme Court definition of pornography: “I can’t describe it, but I know it when I see it.” Cultural alignment is essentially a “gut feel” as much as a specific analytic. Someone once defined culture as “what people do when no one is looking.” Culture is reflected in things large and small and you can get a good sense of it from your interactions with the people from the other organization: How do they treat you? How do they treat each other? 

Physicians must have a stake in the successful consolidation outcome, a stake typically described as “skin in the game.” The more physicians are engaged—culturally, operationally, and managerially, and at each stage—the better the system’s chances of consolidation success. Achieving the necessary level of engagement, among other aspects, requires greater physician presence on the board, and a clinical management agreement in which the physicians actually play key roles in managing the clinical service lines. 

Physicians are typically not accustomed to managing, so this role for physicians must continue to evolve as collaboration evolves, and system administrators should not be reluctant to provide business training to physicians who undertake managerial roles. Such training is definitely nontraditional, but the forces driving consolidation are unprecedented as well. An organization with administrators committed to improved clinical outcomes, and physicians committed to greater operating efficiencies, will have the kind of cultural alignment and integration that are essential in the new world of health care. 

Kevin C. "Casey" Nolan is a Managing Director, Navigant Healthcare, Washington, D.C.

Publication Date: Friday, March 22, 2013