Mergers and Acquisitions Activity Creates Safety, Liability Risks for Hospitals
EXECUTIVE SUMMARY
Mergers and acquisitions can create patient safety risks as disparate cultures merge and clinicians face new working conditions. There also are opportunities to improve safety during the transition.
• Clinicians may face unfamiliar physical surroundings, patient populations, and care protocols.
• Different cultures of safety can clash as people mix with those from another organization.
• Risk managers should work to involve themselves in the process from the earliest opportunity.
The flurry of mergers and acquisitions (M&A) in healthcare recently should put risk managers on alert for threats to patient safety that can come with joining different corporations, facilities, staff, and cultures. Risk managers also should make sure they are involved in M&A negotiations early on so that patient safety issues can be factored in to the process.
M&A activity has held steady over the past few years, with more than 70 deals per year recently. Consolidation has occurred mostly in midsize systems, those worth between $1 billion and $5 billion, but hospitals also are acquiring physician practices and other healthcare lines on a smaller scale. (More information on M&A activity is available in a report from a healthcare consulting and analytics firm at: https://mck.co/2Iq8uf0.)
The threat to patient safety exists no matter how small the merger or acquisition, and larger transactions carry significant risk, says Susan Haas, MD, MSc, co-principal investigator on the Project on System Expansion Risks to Patient Safety with Ariadne Labs, Brigham and Women’s Hospital, and the Harvard T.H. Chan School of Public Health in Boston.
“This is all about anticipation, what you want to scan the environment for and plan so you can mitigate before these problems arise,” she says. “The approach should be all about proactive awareness, looking for where trouble might occur.”
Haas recently co-authored an article in JAMA that highlighted the three primary patient safety risk areas from M&A: new patient populations, unfamiliar infrastructure, and new settings for physicians. (The article is available online at: https://bit.ly/2NDwKjq.)
A change in patient population — demographics or volume — can result from well-meaning efforts to combine previously separate clinical groups, Haas says. The health system may wish to put all obstetrics patients in the same building, for instance, or consolidate EDs.
“A hospital in Boston consolidated two services and one facility that had low prevalence of substance abuse in their obstetric population, suddenly saw a significant jump in those patients and had to adapt to provide care to those patients,” Haas says. “Any kind of different population than the hospital is used to treating will present a challenge, partly because that new patient population may come in a sudden influx rather than a gradual increase that gives the hospital time to learn how to accommodate their needs.”
Another example involves a sudden influx of pediatric patients to an ED. Pediatric dosing is different and more sensitive to error than adult medication dosing, so there would be an increased risk to patients from clinicians not used to treating children as often, Haas says. It is not that clinicians would be wholly unfamiliar with pediatric dosing, but that it is not a part of their typical workflow, she explains.
New Settings Mean New Risks
Unfamiliar infrastructure is one possible result of the push to standardize elements within the newly formed organization, which is usually one of the primary goals in the effort to reduce costs and eliminate clinical variation, she notes.
New settings for physicians can be a patient safety issue. For example, when a hospital does not have enough volume to support a specialist, like a pediatric cardiologist, but after the M&A the new affiliation gives them access to one. The hospital can call on the specialist from the larger facility to visit and provide care closer to the patient’s home.
That is a benefit of a smaller or rural facility affiliating with a larger hospital or system, but Haas says it introduces safety risks.
“The doctors are now practicing with an unfamiliar infrastructure, often alone, unfamiliar with local rules and responsibilities, and especially the local culture. We had one doctor say, ‘I know the medicine, but I just didn’t know how to get things done around here,’” she recalls. “Providing care is both making the clinical decision but also having it executed. If you don’t know how to get it executed, it doesn’t matter what you decide.”
New settings and infrastructure can mean clinicians are practicing in unfamiliar environments, and Haas says that alone can introduce patient safety risks.
“That is an enormous, uncounted, unmeasured, unstudied field of study. We’ve had stories of physicians being assigned to a new hospital and unable to get to a code because they couldn’t figure out how to get to the bridge that takes them to that wing of the hospital,” she says. “A basic orientation for those new physicians is crucial.”
Similarly, clinicians may be unfamiliar with the equipment they are using after M&A. For instance, defibrillators and ultrasound machines are not standardized; they have different interfaces that could slow an emergency response or yield the wrong results.
The human side of hospital operations is just as important, Haas says. Clinicians in new settings may not know who is available to assist in an emergency or difficult case, or they may know who but not how to reach them, she says.
“When they’re making a decision about whether to hospitalize someone or transfer, who is upstairs at 2 a.m. on a Sunday? Maybe you knew who that was and how to contact them quickly at your other facility, but now you don’t,” Haas says. “That’s an incredibly important resource you need to be familiar with.”
Information on liability related to M&A is scarce because malpractice insurers only release information on closed claims, and they do not code cases related to system expansion, Haas says.
Risk managers should look at those three categories in any M&A activity, assessing what is going to be different with any location after the transaction. She cautions that the patient safety risks can go unrecognized by administrators and clinical leaders until patients are harmed.
“We had nurses and doctors say they didn’t know what to call it, but they recognized this risk at their level. The network development people who put this together at a business level aren’t going to see these clinical things,” Haas says. “They’re not going to anticipate and plan for these potential problems that are sneaking up on them.”
Get Involved Early
That means risk managers, if not invited from the outset, must inject themselves into the M&A process, she says. Even when involved in M&A negotiations, risk managers may be asked to assess only financial and legal issues rather than patient safety concerns.
Alert health system leaders to the potential patient safety risks and make a case for why you should have access to the necessary data and people to research them, she says. Lobby for involvement in the decision-making process of the M&A if possible.
“This is not something you can jump into at the last minute, after all the plans have been made and the deal is done. That is exactly how we are in the spot we are in today,” Haas says. “Get involved early. These things are often done quietly, so when you first get word that it is being considered, go to your leadership and tell them if it’s happening or might happen at some time, you would want risk management involved from the very beginning.”
(The Project on System Expansion Risks to Patient Safety offers a free toolkit to address these issues. It is available online at: https://bit.ly/2p7JlOv.)
Culture Clash
Patient safety risks often materialize when cultures clash in M&A, says Kerin Torpey Bashaw, MPH, BSN, RN, senior vice president in the Department of Patient Safety and Risk Management with The Doctors Company, a liability insurer based in Napa, CA. The culture of safety can be significantly different at hospitals, and trouble can arise when those facilities suddenly come under one umbrella and people with different approaches start working together.
The organizations’ scores on the Agency for Healthcare Research and Quality (AHRQ) Hospital Survey on Patient Safety Culture could signal the degree of risk over clashing safety cultures, Bashaw suggests.
If those scores are far apart, that could portend difficulty in merging the two groups when it comes to patient safety issues, she says. (Information on the AHRQ survey is available online at: https://bit.ly/2IdjlZK.)
“If the culture at hospital A is such that a nurse can pull an attending out of the room because she noticed he didn’t perform hand hygiene, the physician might thank that nurse for having his back when he was distracted,” Bashaw says. “At hospital B, the physician might berate the nurse, the nurse shuts down and never challenges a physician again, and she might get reported by the physician. Those are very different cultures, and when you suddenly mix them, you’re more likely to get negative effects — at least in the short run — than to see the good culture win out.”
Bashaw notes that health systems use different models for transformation in M&A, such as the eight steps in the model by John Kotter, and they usually incorporate an assessment of risk. Risk managers would be well advised to study the different risk models and be able to discuss them with leaders when trying to direct attention to the potential patient safety risks associated with M&A, she suggests. (Information on Kotter’s model can be found online at: https://bit.ly/2nB6msb.)
The risk manager can contribute to prioritizing and removing barriers to patient safety improvement during the M&A process, Bashaw says.
“When you’re merging two cultures with different policies, procedures, electronic health records, and personalities, barriers will arise. Having a coalition that is watching for those barriers and willing to remove them is paramount to a successful M&A,” she says. “Some of those barriers can be identified early on and dealt with before a patient is harmed or before existing safety practices are undermined. Those short-term wins are important to giving people reassurance that this M&A can be successful and add value.”
Remember also that there are opportunities to improve patient safety in M&A, says Leah Binder, CEO of The Leapfrog Group in Washington, DC. Any process of change affecting the entire organization represents an opportunity to introduce new concepts and to address existing problems, she says.
“If you don’t pursue the opportunities presented, you will experience the worst of the risks,” Binder says. “The opportunities are to standardize care across organizations and bring all the facilities up to the safety level of the facility with the highest standards. I’ve seen mergers where that happens, with one very high-performing hospital bringing their standards and procedures to the other hospitals involved in the merger and ultimately they improved their safety.”
Standardization is the key to patient safety, and a health system expansion is the perfect opportunity to standardize to a higher level of safety, Binder says. Standardization also is necessary to simply prevent the overall safety level from sliding down.
“The risk is that there’s just chaos, with everyone having a different idea how care should be delivered. Physicians going from institution to institution with their own ideas of how things should be run,” Binder says. “That is the height of an unsafe environment for patients. M&A can reduce patient safety by undermining standardization, unless that is made a priority in the merger process.”
Medication reconciliation is one opportunity for potential improvement, with one hospital bringing its superior processes to the merger, she notes.
Another opportunity involves surgical volume standards. Research indicates that patient safety improves with certain procedures when surgeons perform a minimum number of cases regularly, so merged systems can direct more patients to surgeons to ensure safe patient volumes, Binder says.
“We’ve seen that happen in mergers, with good results. The newly merged system says this is now the hospital that does this procedure, and that hospital is the one that does this other procedure,” she explains. “They do not allow surgeons to just do one of these procedures once a year, for example, when we know that is unsafe. That is an example where safety can be vastly improved with a systematic approach.”
Binder points out that the Centers for Medicare & Medicaid Services (CMS) reports hospital quality by Medicare provider number, and sometimes an entire system uses only one number. That means the variation in performance by different facilities will not always be apparent within one system. Risk managers need to be aware of that and make sure they are digging deep enough to get the data that show variability within the system, she says.
M&A a Distraction From Daily Tasks
M&A also can distract clinicians and hospital leaders from their daily activities, notes John O. Chesley, JD, an attorney with the Ropes & Gray law firm in San Francisco.
“The distraction arises because management often is pulled away to the demands of the M&A process and there are just so many hours in the day,” Chesley says. “The consequence can be that those in a supervisory function can take their eyes off the ball. It’s natural; just the result of being pulled in different directions.”
For example, M&A requires extensive due diligence before the deal closes, and that usually requires a great deal of document requests. Personal interviews also may be involved, but feeding the beast of document requests can come to dominate the time of many healthcare leaders — including risk managers, he says.
“That can include a download of patient care policies, statements of deficiency, and plans of correction, for instance. If there are any Medicare deficiencies, the parties will gather around that and want to know what is out of compliance, what the plan of correction is,” Chesley says. “All of that demands a huge amount of attention from not just managers but also nurse supervisors and others involved in the patient care safety process. This is a time when things can be missed with patients.”
Unfortunately, there may be some limitations in how much a risk manager can be involved in the M&A process, at least in the first phase before the expansion goes public. Before that point, the discussions are typically confidential, involving only the top leaders of each organization, he says. That means risk managers will be brought in — if they are included at all — only after some preliminary decisions and plans are made.
Keep in mind how the announcement of a potential merger will affect employees and physicians at all of the involved facilities.
“Everyone who works at these organizations will start wondering how it affects them and if they might lose their jobs. So there is another element of distraction,” Chesley says. “Work to keep them informed as much as possible so that you can minimize that fear and keep them focused on their work.”
Risk managers also can become involved with managing situations that could influence M&A negotiations, Chesley says. For instance, if a report cites the hospital for a high number of falls, the resulting media reports could influence the parties negotiating the deal, he explains.
“Paying attention to everything that a state agency can evaluate and apply penalties to should be on somebody’s checklist,” he says.
Struggling Hospitals Can Improve
The good news is that M&A can address issues in struggling hospitals that might compromise patient safety, says Diane Rafferty, managing director of the Healthcare Industry Group with the consulting firm Alvarez & Marsal in Los Angeles.
“Mergers and acquisitions of health systems remain strong, with little change in momentum. When properly executed, mergers can improve the survivability of struggling hospitals by helping to keep patient access local, enhancing leverage with the payers and vendors, increasing access to capital, and advancing the standardization of patient care protocols,” Rafferty says.
Keeping up with the process may be one of the challenges for risk managers. The business side of an M&A needs to move quickly and effectively to achieve the promised financial benefits, Rafferty says. But merging the business office, revenue cycle, and contracting is very different than merging clinical staff, patient care protocols, policies, and procedures, she says.
“The upfront work required to merge different care delivery cultures is important to understand and to manage. Larger systems see themselves as taking over the smaller system, as they believe they bring the better way of doing things,” she says. “Minimal time is spent understanding what the acquired has to offer, which can be incredible best practices or a specific culture that benefits their patient population, which has taken years to develop.”
It is important to be realistic about expectations when working with clinicians to address potential patient safety concerns, Rafferty says. Not all clinicians and employees will be happy and may feel that decisions are being made by those far removed from the work.
“Addressing these concerns in an upfront and transparent manner is critical,” she says. “Unhappy employees may result in decreased patient satisfaction, which in turn can affect the cost benefits of the deal and cause a delay in the work required to make it a success.”
SOURCES
• Kerin Torpey Bashaw, MPH, BSN, RN, Senior Vice President, Department of Patient Safety and Risk Management, The Doctors Company, Napa, CA. Phone: (707) 226-0291. Email: [email protected].
• Leah Binder, CEO, The Leapfrog Group, Washington, DC. Phone: (202) 292-6713.
• John O. Chesley, JD, Ropes & Gray, San Francisco. Phone: (415) 315-6394. Email: [email protected].
• Susan Haas, MD, MSc, Project on System Expansion Risks to Patient Safety, Ariadne Labs, Brigham and Women’s Hospital, Harvard T.H. Chan School of Public Health, Boston. Phone: (617) 823-0385. Email: [email protected].
• Diane Rafferty, Managing Director, Healthcare Industry Group, Alvarez & Marsal, Los Angeles. Phone: (949) 939-4190. Email: [email protected].
Mergers and acquisitions can create patient safety risks as disparate cultures merge and clinicians face new working conditions.
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