The Art and Science of Integration
Conceptually, integration is almost always a winner; but there actually are clear winners, clear losers, and the likelihood of many slowly unfolding disappointments that can syphon off energy and dollars over several years.
Integration in health care takes so many forms that a roadmap can be helpful. For example:
- Clinically integrated networks share data and risk, and they work with a specific group of patient consumers with the goal of achieving the “triple aim.”
- Physical healthcare services are integrated with behavioral health and other related services with the goal of delivering more effective outcomes.
- State, federal, and commercial programs are integrated with the goal of improving quality, lowering cost, and closing gaps in care.
- Financial and care data are integrated across different platforms and users with the goal of providing better information and accessibility at a lower cost.
When we seek to integrate something, our goal generally is to achieve better performance at a lower cost. Often, we are trying to avoid duplication, and to coordinate activities across several legal entities or departments or teams.
The Logic of Integration
By definition, a proposed integration represents an improvement over going it alone—if it weren’t, no organization would do it. It also, by definition, should be more than simply a legal merger or other form of consolidation. Integration often can be a “conceptual middle ground” between merger and independence.
As a matter of principle, integration is almost always an option to be considered. But too often, we don’t subject integration to the same level of rigorous scrutiny as we do a merger. We usually don’t quantify the benefits, the costs, or the risk of failure as carefully.
Here are seven key factors and related initial questions healthcare organizations can consider regarding a proposed integration.
Performance potential. Can we quantify the performance goals? How does achieving these goals with partners compare with what can be accomplished going it alone? What is the business plan for achieving the performance goals? Often, integration involves leveraging more than one organization’s patient population, more than one brand or reputation, or more than one set of core competencies.
Governance. How will the integrated entity be governed? If several organizations—such as health systems, medical groups, insurers, and state entities—are involved, at what level in these organizations should the integration governance occur? The integration activity usually represents a subset of what the sponsoring entities do—with the goal of improving population health management or information management, for example. The governance of the integration needs to be a combination of overall leadership and subjective matter experts. Insuring that the governance of the integration work dovetails with the sponsoring organizations’ overall governance is critically important.
Risk. What are the risks, including not only financial risks but also risks to reputation and operations?
Strategic implications. Is integration seen as a stepping stone within a larger strategy, such as toward a merger or other action? If so, what are the criteria for judging whether to go further? Does the integration work well if further consolidation does not occur?
Partnership alignment. Do the partners in the merger have similar enough overall goals?
Leadership relationships. Do the leaders, including those who will be governing the integration, get along with each other?
Costs and viability. What are the investment costs? Can all the prospective partners afford it? What are the indirect implications if it fails? Intuitively, does it seem likely that this proposed integration would still be in place in five years?
Our experience suggests organizations should be alert to some key warning signs of potential integration disruption or failure. Organizations should be watchful for any indicator that the initiative has become too complex, involving too many different players at different levels, using too many different metrics, and requiring too many steps.
Other potential pitfalls include:
- Too many different perspectives at the partner level, with too many different cultures and leadership styles.
- Widely held unrealistic expectations, where too much is expected for too little investment of time and effort, where complexities go unrecognized, and where there are too many differences in expectations among the partners.
- Broadly inconsistent policies regarding approval and governance, where the process is highly involved at some partners and perfunctory at others.
Integration initiatives should be reassessed after two to three years, with an eye to identifying such potential pitfalls. The assessment also should consider whether the integrated arrangement is working well for all partners or just for some and whether the partners have undergone changes in leadership and goals.
A key consideration is whether leadership should be strengthened. The assessment should look at whether the partners are investing too little in the initiative relative to what already has been achieved and the long-term potential. Integration activities all too often fall short of their potential simply because senior leadership does not recognize the full potential of the activities from the start.
An Exit Strategy
Every significant finance initiative requires an analysis of how it could end if it does not work. We have noticed that many financial organizations perform such an analysis on the front end, as a standard process, when a new initiative is being considered. The goal of such an analysis is not only to outline a way to unravel the arrangement were it to prove untenable, but also to understand the financial and non-financial implications of such an unexpected outcome and ensure the organization can avoid pouring more money, time, and effort into something that isn’t working.
Due Diligence Required
Give integration its due. Integration initiatives are potentially far reaching. Such initiatives can be highly flexible and easy to start. As a result, they also too often are entered casually. The level of analysis and rigor they require is similar to that for a merger, and they require a similar level of monitoring. And they often need a mid-course correction. In short, an integration initiative should never be entered lightly.