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How experts approach a merger: Preparation, finding common ground and communication go a long way to assuring a successful deal

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Barry Ostrowsky, president and CEO, RJWBarnabas.
Barry Ostrowsky, president and CEO, RJWBarnabas. - ()

At the end of August, Cooper University Health Care Chairman George E. Norcross III, announced that Cooper signed a letter of intent to acquire Trinity Health's New Jersey facilities, which include Our Lady of Lourdes Medical Center in Camden, Lourdes Medical Center of Burlington County, and St. Francis Medical Center in Trenton. Assuming the transaction goes through, Norcross says the combined entity will “become the largest health system in South Jersey, and the fourth largest health system in New Jersey, with revenues of nearly $2 billion, more than 12,000 employees.” This will include more than 875 physicians serving Camden, Mercer, Burlington, Gloucester, Salem, Cumberland and Atlantic counties.

Representatives from both systems were tight-lipped about the deal, which is subject to state and federal regulatory approval, but NJBIZ spoke with some experts, including a healthcare CEO, about the psychology of a merger.

Be prepared

Advance preparation is an important component of a successful M&A, according to Barry Ostrowsky, who’s been through a major health care merger. He was president and CEO of Barnabas Health until April 2016, when Barnabas merged with the Robert Wood Johnson Health System and he became CEO of the new 32,500-plus-person system, RJWBarnabas.

Ostrowsky says in his case, a decision was made early on to address major issues that could impact the merger, and follow through with solutions.

“I’ve done a lot of M&A agreements, but this was the first one [where] both organizations listed nine reasons for getting together on page 2,” he explains, noting that it’s best to keep things simple and clear. “Sometimes, you can get so caught up in details that your ultimate goal gets lost,” states Ostrowsky. “It’s like working on a construction project where they display a large poster of the finished product—when you can see what you’re working for—it keeps up the excitement.”

Finding common ground is also part of the process. “Organizational cultures are important,” he says. “Even if your outlooks are different, a merger can work—but the organizations will have to spend time on finding common ground and integrating their outlooks.”

In the case of Barnabas Health and RWJ, it was easy, he adds. “Even before we sat down and talked, it was apparent that both organizations had the same mission: a commitment to academics and the local community.”

But there were some differences in their approach to operations like purchasing, information technology and legal. “We had some slightly different perspectives, so we established an office of integration, with an officer whose exclusive responsibility was to put together people and integrate the operational functions between the organizations,” and ensure that operational functions would be standardized.

“We set annual goals for cost savings, and after a little more than a year we’ve already saved more than our original third-year goal.”

Part of the reason they were able to mesh was because “we put executives in the same conference room so they could meet face-to-face and collaborate,” Ostrowsky explains. “We also addressed governance issues, and developed a board of trustees that reflected a 60-50 representation from each hospital system.”

Before the merger was even officially complete, he called the board into session three times on an unofficial basis, “so by the time the first official board meeting was held, everyone knew one other. In effect, there was no difference between Barnabas and RWJ board members; they were fully aligned with each other.”

Reaching out to the rank and file

“Ultimately, it’s all about people,” he says. “If your people bring the wrong spirit to the table, or if they’re not convinced that the deal benefits them, they’ll lose interest and will be less productive. To be sure everyone was on board, I spent 50 percent of my time during the transaction traveling around to make sure everyone understood what was going on, so they wouldn’t be anxious about it.”

He spoke “with everyone,” including rank-and-file workers, executives and of course physicians. “I told people to call me if they had any questions. Some physicians, for example, called me with questions about programmatic issues, and I was happy to talk with them.”

The key to any successful merger is groundwork, he adds. “Don’t focus on the form or the structure of a transaction until both sides sit down and talk about what they want from it, and how combining in a legal relationship will benefit everyone. Once you decide that, then work on form and structure. This was a sizable transaction that was complex, but it went very smoothly.”

Bringing the Cooper-Trinity M&A into the examining room

The fact that subject state and federal regulators will be reviewing the Cooper University-Trinity deal doesn’t surprise Whit Mayo, a senior research analyst with the Milwaukee-based financial services firm Robert W. Baird & Co. Inc.

“Any time that large hospital systems are planning a merger or acquisition, regulatory authorities will likely get involved to see if there are any antitrust or other complications,” says Mayo, who focuses on health care facilities and services. “Internally, the leadership teams from each institution should be aligned about issues like their delivery system, and how they plan to streamline services and merge departments.”

A culture checklist

Unlike mergers in other industries, where cost-cutting is a primary goal, the culture of each system can be critical in a deal like this. “Health care is a different animal,” Mayo says. “Consolidation in this segment is often undertaken to free up capacity to expand into additional medical services.”

One key is whether the nurses and physicians of each organization align, he cautions. “This is an industry that’s all about relationship and trust. Without a cultural mesh, the referral physician community may lose confidence and stop referrals.”

In this particular case, the fact that Cooper is a secular organization and Trinity is a religious one—the Trinity system calls itself “a national Catholic health system,” and  Lourdes says “in all we do, our care is guided by the values of our founding Franciscan Sisters of Allegany”—could be a stumbling block, according to Mayo. “There may be an issue, although each situation is different. We have seen some cases where the secular hospital may stop certain services. For example, if an affiliated clinic performs abortions, it may cease to be affiliated from the hospital. An issue like this could be a deal breaker.”

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