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Managed Care: The Human Factor in Mergers and Acquisitions: A Personal Story
Arthur Lazarus, M.D., M.B.A.
Psychiatric Services 2000; doi:
Abstract

Introduction by the column editor: The last managed care column, in the October issue, began by noting that "behavioral health programs are changing at a dizzying pace" and then discussed mergers and acquisitions at the level of the organization. In this column, Dr. Lazarus tells about his own experience with the turbulent U.S. health care system. As clinicians we know the importance of continuity of care. Paradoxically, the current system creates discontinuities for ourselves and our patients. It is a serious problem.

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Mergers between managed behavioral health care firms are having a profound impact on clinicians, program managers, and patients. Well over 100 consolidations occurred in the managed behavioral health care industry in the past decade, and a few companies now dominate the national market (1). In what has become managed behavioral care's version of Pac-Man, a company can call itself "Acquired Health Care Organization" and be correct 50 percent of the time.

Providers as well as payers have been affected by merger mania. During the 1990s, more than 1,000 hospitals nationally were part of a merger or acquisition (2). As hospitals downsize and length of stay and admissions decrease, hospitals are simultaneously expanding services through diversification into such areas as home health care, surgicenters, and women's health, thus making the merger process ever more complex.

Moreover, a possible surplus of physicians and medical schools means that more institutions are likely to merge, with the result that some physicians—primarily specialists and subspecialists—will lose their income or even their jobs (3). Hospitals will close facilities, lay off workers, and eliminate marginal programs as occupancy declines under the influence of capitation.

None of these hazards were apparent to me in 1992 when I was medical director of a behavioral group practice that entered into a joint venture with a large utilization review organization. Our practice strengthened its utilization management program. The utilization review firm benefited from our well-established provider network and capitated carve-out contracts with health maintenance organizations. Eventually the utilization review firm acquired us.

The merger between our practice and the utilization review company positioned me in a different venue, namely, a bureaucratic corporation. It was sobering to be outnumbered by lay administrators, some of whom ranked above me in the organization. Indeed, the very existence of an organizational hierarchy and explicit lines of reporting was new to me, and I had to adjust to corporate life.

Fortunately, the president and chief executive officer of the utilization review company was the former chair of the department of psychiatry where I trained. He was a friend and mentor. He helped pave the way for a smooth merger between our practice and his company. Two years later, however, a utilization review firm in a different state acquired the company. Assimilating the two cultures proved difficult and resulted in substantial employee turnover.

Our president and chief executive officer resigned, giving way to the leadership of the other company. My two partners from the group practice were forced out, although each had a golden parachute—a generous severance package top executives get when they're dismissed or their companies are sold. Numerous managers left, and most of our company's policies and procedures were replaced. My role changed from medical director to "physician adviser," and my spirits began to sink.

I changed jobs and became medical director of a psychiatric hospital, only to meet a similar fate. Six months into the job, I learned that the hospital was on the verge of bankruptcy. The only way it could be saved was if it raised cash fast. A white knight came in the form of a competitor hospital, which set into motion events similar to what I experienced at the utilization review firm—a diminished role in a system where someone else was calling the shots.

After a difficult year as medical director of the hospital, I landed a solid job at Allegheny Health, Education, and Research Foundation. But even academic medical centers are consolidating or getting sold, and mine was no exception. It had accumulated significant debt and was forced to lay off 9 percent of its workforce in 1997. The following year, millions of dollars from restricted endowments were allegedly used to forestall bankruptcy (for details, see http://health.philly. com/packages/allegheny). I left and became a medical director at Prudential HealthCare.

Shortly after accepting that position, Aetna US Healthcare made a formal offer to acquire Prudential HealthCare. Not knowing my fate, and fearing the worst, I began to put out feelers. Interestingly, while surfing the Internet (http://www.acpe.org), I discovered a newly created position in behavioral health care management at Humana. Corporate positions for psychiatrists in large managed care organizations are rare. Given the opportunity, and with the support of my family, I decided to relocate to Louisville from my hometown of Philadelphia.

Without ever being fired, I changed jobs six times in the 1990s. All of the changes were due to market forces beyond my control. Admittedly, I may have panicked once or twice, anticipating my job would be eliminated or scaled back, but I don't think my experience is unique.

Recently, I commiserated with a former academic colleague who has had to "reinvent" himself several times (4). Whether in practice, research, or management, there is very little stability in our health care system (5,6). The days of undivided loyalty in exchange for eternal employment and the gold watch are gone. The current deal is to work in a setting for as long as the company needs you and you need the company.

Harsh as this may sound, it is possible to survive mergers, acquisitions, and downsizing—MADness. I would like to make several suggestions for readers confronted with health system MADness.

First, recognize that consolidation in health care will continue well into the new millennium. To offset job insecurity, ask for a severance package before accepting a new position—one that will compensate you for, say, six months if you're terminated without cause. Money is little consolation for being terminated, especially from a job you like, but it helps buy time to search for another position and reduces the panic associated with sudden unemployment.

Second, when a merger is on the horizon, find a senior colleague you can trust and discuss the turmoil, confusion, and tension created when organizations collide. Don't settle for a few obligatory words of reassurance, which often amount to false hopes and promises. What you really want is for senior management to provide a detailed proposal of staffing changes and the expected strategic, financial, and operational benefits of the new organization. Answers to some of these questions may not be known immediately, but they should become apparent within months after the merger is announced.

Third, see if you can participate in an "integration team" to help plan the changes. Your involvement will keep you close to the action and may forewarn you of danger. If you are lucky enough to retain your job when the transitional dust settles, don't be surprised if you're left with more work, fewer chances for promotion, survivor guilt, depression, or anger—all the more reason to seek support.

About half of all mergers and acquisitions unravel because executives are unable to execute (or sometimes even take seriously) the hard, grinding, day-to-day work necessary to meld disparate people, cultures, and systems (7). Truly enlightened organizations, and the CEOs who run them, often hire professional consultants to prevent culture clashes during mergers and acquisitions. Without professionals trained in organizational dynamics, the forces of fragmentation usually take over (8). A "we-versus-they" mentality develops, and job security becomes more risky for employees of the target (acquired) company. Thus if you can't play an active role in shaping the new culture, at least ask if consultants can be hired for this purpose.

Fourth, find out as soon as possible where you stand in the new hierarchy. Will the person you report to be the same as before the merger? Will the number of employees reporting directly to you change? What additional responsibilities will be assigned to you? Try to understand the reasons why your organization is merging so that you can anticipate what might happen and make plans to adapt to the changes. This approach requires a needs analysis for yourself and the organization, "out-of-the-box" thinking, and creative problem solving. It might even provide an opportunity to rewrite your job description or, if desired, relocate to a different state.

An awkward stage exists between the time the merger or acquisition is announced and the time it is actually consummated. During this period, known as due diligence, many key personnel decisions are considered and made. To preserve your job, you should responsibly advocate for the merger (even if you're against it), appear assertive rather than indifferent or arrogant, and be able to justify your continued employment, if necessary. Once positions are finalized, decisions are unlikely to be reversed.

Finally, bear in mind that even if you are in private practice, you will not be insulated from mergers and acquisitions. For example, suppose you are a provider for managed care organization A but not for managed care organization B. Company A is acquired by company B, which already has a network in your area. Will you be grandparented into the network, or will you be deselected?

In case of the latter, what percentage of your referral base will you lose? And what will happen to your current and former patients referred to you by company A? Will they be allowed to see you, or will they be forced to see another provider in the network? Unless you are proactive, your patients and your practice may suffer dramatically.

Suppose you are a psychiatrist spending 25 percent of your time seeing inpatients at a local hospital or a part-time clinical manager of the hospital's partial hospitalization program. A merger is under way between your institution and a larger one that provides the same services. Assume that duplicative services will be consolidated into the operations of the larger institution, and that this institution employs clinicians on a full-time salaried basis. Will you be able to retain your relationship with the new rganization? If not, how quickly can you make up lost wages by finding work elsewhere?

These scenarios and countless others speak to the tremendous uncertainty and fragility our turbulent marketplace creates for health professionals today. Under these circumstances we must constantly scan the horizon, looking not only for new job opportunities but also for current conditions that could adversely affect our careers. As I know all too well, we may be jettisoned from our job at any time. We hope that we will have a parachute to soften the landing.

Dr. Lazarus is vice-president and corporate medical director of behavioral health at Humana Inc., 500 West Main Street, 17th Floor, Louisville, Kentucky 40202 (e-mail, alazarus@humana.com). James E. Sabin, M.D., is editor of this column.

Kihlstrom LC: Characteristics and growth of managed behavioral health care firms. Health Affairs 16(4):127-130,  1997
 
Uhlman M: Hospital mergers are causing new set of ills. Philadelphia Inquirer, July 14, 1997, pp Al,A6
 
Kassirer JP: Mergers and acquisitions: who benefits? Who loses? New England Journal of Medicine 334:722-723,  1996
 
Bottles K: Reinventing my medical career. Physician Executive 25(5):40-43,  1999
 
Huang AJ: Reinventing the physician-scientist in the new era of health care (editorial). JAMA 281:94,  1999
 
Lazarus A (ed): Career Pathways in Psychiatry: Transition in Changing Times. Hillsdale, NJ, Analytic Press, 1996
 
Buono AF, Bowditch JL (eds): The Human Side of Mergers and Acquisitions. San Francisco, Jossey-Bass, 1989
 
Bruzzese A: Culture shock. Human Resources Executive, July 1997, pp 47-48
 
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References

Kihlstrom LC: Characteristics and growth of managed behavioral health care firms. Health Affairs 16(4):127-130,  1997
 
Uhlman M: Hospital mergers are causing new set of ills. Philadelphia Inquirer, July 14, 1997, pp Al,A6
 
Kassirer JP: Mergers and acquisitions: who benefits? Who loses? New England Journal of Medicine 334:722-723,  1996
 
Bottles K: Reinventing my medical career. Physician Executive 25(5):40-43,  1999
 
Huang AJ: Reinventing the physician-scientist in the new era of health care (editorial). JAMA 281:94,  1999
 
Lazarus A (ed): Career Pathways in Psychiatry: Transition in Changing Times. Hillsdale, NJ, Analytic Press, 1996
 
Buono AF, Bowditch JL (eds): The Human Side of Mergers and Acquisitions. San Francisco, Jossey-Bass, 1989
 
Bruzzese A: Culture shock. Human Resources Executive, July 1997, pp 47-48
 
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