This is the third article in a series of three articles focused on pressing issues that hospital and health system executives need to consider when exploring mergers and acquisitions. The first article covers strategic considerations for a hospital transaction. The second article covers clinical considerations for a hospital transaction.
The operational segment of a healthcare transaction involves workforce issues like union contracts, total compensation and rewards philosophies. If hospitals differ on the management of these issues, consolidation could require major overhaul. Organizations need to find common ground to align operations successfully in order for the transaction to produce value.
"While the business strategy is first and foremost, leadership needs to be willing to look at workforce considerations as well — the sooner the better. They can have major implications for how well the transaction goes and how quickly operations can integrate," says Gay Casey, director and leader of the human resource division for Berkeley Research Group, a global consulting firm with a focus in healthcare.
Here, Ms. Casey discusses three workforce issues hospital leaders must address for transaction success.
1. Total rewards philosophy. According to Ms. Casey, hospital executives should look at the total rewards philosophy of each organization, understand differences and have a plan for how to integrate.
Leaders need to develop a plan for two elements of the philosophy: compensation and benefits.
Compensation
"If one organization has a total rewards philosophy that positions compensation in the 50th percentile of the market and the second organization is in the 65th percentile, there could be a large cost burden associated with bringing the organization with the 50th percentile philosophy up to 65th," says Ms. Casey. "However, it is very difficult to change a compensation philosophy downward."
"If leaders can integrate the workforce philosophy quickly, the cultures will integrate more quickly as well, and it is better for the entire enterprise overall," says Ms. Casey.
Benefits
Benefits, especially retirement benefits, are a big part of total rewards and integrating two organizations with different structures is complicated. "If one organization has a defined contribution plan and another has a defined benefit program — integration decisions become very complicated," states Ms. Casey. Ms. Casey recommends leaders conduct a thorough review of the status of each organization's plan. "Specifically, leaders need to know the funding status of a defined benefit plan because it determines the financial obligations one organization is taking on, and what flexibility the organization would have to continue or eliminate the plan," she says.
2. Model of care. A hospital's nursing model of care can be a big cost-driver. For this reason, Ms. Casey recommends that potential partners review this element of workforce management during transaction discussions. "If one organization utilizes an all registered nurse model and the second organization uses RNs as well as technicians, they are delivering care in different fashions," says Ms. Casey. "Executives need to discuss what model to continue because each model has different associated costs. Generally, the all RN model is more expensive."
3. Union contracts. Union status needs to be discussed before transaction discussions close. If one hospital's workers are unionized and the potential partner's workers are not, there could be critical ramifications.
"Union contracts cover compensation issues, benefit issues and how flexible the work staff can be," says Ms. Casey. "Leaders need to review the contracts to understand the constraints they place on strategy in the overall integration."
The above three issues are not comprehensive of all workforce management issues, but they are the biggest areas for hospital executives to consider, according to Ms. Casey.
"Labor costs make up approximately 50 percent of hospital operating budgets. The decisions made drive costs, so they are very important to address," says Ms. Casey. "The overall culture will also be better if the hospitals can work together as one organization instead of two separate facilities."
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The operational segment of a healthcare transaction involves workforce issues like union contracts, total compensation and rewards philosophies. If hospitals differ on the management of these issues, consolidation could require major overhaul. Organizations need to find common ground to align operations successfully in order for the transaction to produce value.
"While the business strategy is first and foremost, leadership needs to be willing to look at workforce considerations as well — the sooner the better. They can have major implications for how well the transaction goes and how quickly operations can integrate," says Gay Casey, director and leader of the human resource division for Berkeley Research Group, a global consulting firm with a focus in healthcare.
Here, Ms. Casey discusses three workforce issues hospital leaders must address for transaction success.
1. Total rewards philosophy. According to Ms. Casey, hospital executives should look at the total rewards philosophy of each organization, understand differences and have a plan for how to integrate.
Leaders need to develop a plan for two elements of the philosophy: compensation and benefits.
Compensation
"If one organization has a total rewards philosophy that positions compensation in the 50th percentile of the market and the second organization is in the 65th percentile, there could be a large cost burden associated with bringing the organization with the 50th percentile philosophy up to 65th," says Ms. Casey. "However, it is very difficult to change a compensation philosophy downward."
"If leaders can integrate the workforce philosophy quickly, the cultures will integrate more quickly as well, and it is better for the entire enterprise overall," says Ms. Casey.
Benefits
Benefits, especially retirement benefits, are a big part of total rewards and integrating two organizations with different structures is complicated. "If one organization has a defined contribution plan and another has a defined benefit program — integration decisions become very complicated," states Ms. Casey. Ms. Casey recommends leaders conduct a thorough review of the status of each organization's plan. "Specifically, leaders need to know the funding status of a defined benefit plan because it determines the financial obligations one organization is taking on, and what flexibility the organization would have to continue or eliminate the plan," she says.
2. Model of care. A hospital's nursing model of care can be a big cost-driver. For this reason, Ms. Casey recommends that potential partners review this element of workforce management during transaction discussions. "If one organization utilizes an all registered nurse model and the second organization uses RNs as well as technicians, they are delivering care in different fashions," says Ms. Casey. "Executives need to discuss what model to continue because each model has different associated costs. Generally, the all RN model is more expensive."
3. Union contracts. Union status needs to be discussed before transaction discussions close. If one hospital's workers are unionized and the potential partner's workers are not, there could be critical ramifications.
"Union contracts cover compensation issues, benefit issues and how flexible the work staff can be," says Ms. Casey. "Leaders need to review the contracts to understand the constraints they place on strategy in the overall integration."
The above three issues are not comprehensive of all workforce management issues, but they are the biggest areas for hospital executives to consider, according to Ms. Casey.
"Labor costs make up approximately 50 percent of hospital operating budgets. The decisions made drive costs, so they are very important to address," says Ms. Casey. "The overall culture will also be better if the hospitals can work together as one organization instead of two separate facilities."
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