The Kaiser Family Foundation: Report - Is There A Common Ground?

Appendix C: Case Study Reports

I. Case Study A
II. Case Study B
III. Case Study C
IV. Case Study D

II. Case Study B

In 1995, a 499-bed academic, not-for-profit medical center and an 83-bed Catholic hospital received permission from the Department of Justice to merge. The facilities were located in the North East region of the country, four miles apart, and were the sole providers of hospital services in their area. The merger was part of a larger integration strategy that involved a physician group practice (consisting of 10 practices under a not-for-profit umbrella) and a university-based medical college, with the goal of developing an integrated delivery system. This was achieved by dissolving the Catholic hospital and group practice into a re-organized medical center that now operates as a not-for-profit system with a new name, governing board, and scope of activity.

The medical center was a tertiary care provider offering a wide range of services. Many regarded it as the place to go for highly technical care. The Catholic facility offered a limited range of services and was known for its concern for the well-being of patients and attention to providing "tender-loving care." Although the two facilities had essentially the same medical staff, they often competed for resources and patients.

Although the overall unemployment rate in the predominantly agricultural state is less than 5%, there is a great deal of rural poverty. The population served by the medical center was heterogenous and included the professionals of its surrounding communities, a large number of the working poor, and most of the African American and Asian American populations. The population served by the Catholic hospital was more homogenous and consisted mainly of the elderly, white, and French-speaking Catholics who were strongly committed to the mission and values of their provider.

This report focuses on the process and outcomes of the merger between the medical center and the Catholic hospital and not on the integration issues pertaining to the two other partners.

The Affiliation Process

Earlier Affiliation Between a Catholic and Non-Catholic Provider (1960s)

In the 1960s, three hospitals operated in this community: one was non-sectarian, and two were Catholic hospitals under the sponsorship of the same order. The Catholic order's mission included promoting cooperation among health care providers and reducing service duplication. In 1967, ethical concerns that service duplication by one of the Catholic providers and its non-sectarian neighbor compromised this mission led to the Catholic hospital merging into the non-sectarian hospital to form the Medical Center. The Catholic hospital's physical space was then purchased by the state university and became the location for the network of physician group practices. The merger and change in function of the Catholic facility led to much dissent among Catholic community members. Key informants suggested that some community members have "never gotten over it" and now feel that the medical center has closed the one remaining Catholic facility.

Second Affiliation Between a Catholic and Non-Catholic Provider (1990s)

In 1993, in response to marketplace changes, four organizations established a goal to create an integrated delivery system that could provide a wide range of services. The key players driving the integration strategy were the senior leaders of the four organizations. The anticipated growth of managed care and of capitation were cited as the factors motivating their decision. Other important motivators were reducing service duplication, achieving economies of scale, and improving service coordination. In addition, the CEO of the Catholic hospital, the local Bishop, and the Order of Sisters providing care in the institution were concerned that declining revenues and admissions threatened the survivability of the hospital. They saw the merger as a strategy for preserving the Catholic health care mission in the state.

Toward a New Organization

In 1993, the leaders of the four organizations considered several affiliation alternatives and agreed that the best way to work together would be through one system. The leaders obtained the approval of their respective governing boards, formed a governance group to oversee the transition, and established different committees to operationalize the merger. Each party kept its own legal counsel, and all four agreed to an external consultant to assist in the development of directional strategies for the newly formed system. The Department of Justice review was described as uneventful since the census figures for the Catholic hospital had fallen to a level below the DOJ's threshold for a potential antitrust violation.

Organizationally, the merger resulted in dissolving the Catholic hospital and group practice and re-organizing the medical center into a new integrated system with an 18-member governing board: four members representing each of the four partners, the system CEO, and board chair. (Each of the 4 organizations also kept its own board). The dean of the medical school is currently leading the new system. Clinical departments were re-organized into seven health care services, and administrative teams were created to lead the services. Each team consists of a physician (the team leader), an administrator, and a nurse. At the Catholic hospital's request, an ethics committee of the system's governing board was formed to evaluate corporate ethical issues.

Although the facilities had initially intended to pursue a full-asset merger, gaining control over the Catholic land and buildings would have required approval from the corporate parent of the religious hospital and, eventually, from the Vatican. Instead of pursuing a full merger, the two hospitals agreed to a lease-back arrangement with a 99-year commitment. The Catholic church retained ownership of the real estate component; the new system gained control over the equipment, operations, and title to the business. System bylaws recognize that the Directives will continue to apply on the former Catholic campus. Religious symbols continue to decorate this campus, and the Vice President of Mission sustains the facility's time-honored traditions.

To communicate the merger both internally and externally, a merger newsletter was published and distributed, and a hotline was established to respond to questions from employees and the community. In addition, town meetings were held at the medical center to provide community members with an opportunity to express their concerns. A funeral and mass were held to "mark the death" of the Catholic facility, and a time capsule was buried on the property. Community input in selecting the system's name was solicited.

The system is currently facing a number of operational challenges. First, the integration of disparate professional cultures has not proceeded smoothly. Insufficient attention to managing the human relations issues that emerge during mergers and a downsizing initiative that disproportionately affected employees of the former Catholic hospital have led to internal difficulties. Second, the Catholic administrators are concerned that the system is not adequately preserving the value of compassion in patient care and employee relations that prevailed at the religious facility. Third, the Catholic administrators and the community regret that the former Catholic campus is not being utilized appropriately. At present, the campus provides outpatient surgery and walk-in free clinics only. Initial plans to provide rehabilitation services on this campus did not materialize due to complex federal reimbursement issues. Plans are being developed to initiate this service in 1997.

A fourth challenge relates to the new role of physicians as service leaders. Many feel that the physician leaders are not adequately trained in finance and management to appropriately handle their responsibilities. An underground newspaper has emerged chastising the administration for "turning over power to the physicians." One administrator commented that teaching physicians to operate as employees and managers (not as entrepreneurs) is an issue that many integrated delivery systems are facing. Strategies for addressing these skill deficits and for promoting collaboration among physicians are being identified.

Status of Reproductive Services

The site visit was completed approximately two years after the DOJ approved the merger. Key informants reported that the merger has improved community women's access to health care services and has had no negative impact on the provision of reproductive health services. Current plans to address women's needs are likely to improve the comprehensiveness of care as well as service coordination among historically fragmented providers.

Prior to the merger, the Catholic hospital provided basic gynecological care and surgery. No obstetrical services and none of the proscribed reproductive services were provided on campus. The hospital did not object, however, to providers offering contraception or sterilization services in their offices in professional buildings, and it had no policy against abortion referrals. The medical center provided a wide range of reproductive services including prenatal care, prenatal genetic counseling, obstetrics, gynecology, contraception, sterilization (for men and women), and infertility workups and treatments. Treatment for rape victims and emergency contraception also were provided. Although the center has no policy against provision of abortion, it typically offers only second-trimester abortions (around twelve procedures a year) in cases of fetal anomaly or for health or life of the woman. Center providers treat post-abortion complications as gynecological care. First-trimester abortions typically are provided at the local Planned Parenthood, a community women's health center (an independent center that provides reproductive services), and physicians' offices; center providers arrange referrals. Women needing second-trimester, elective abortions typically go out of state to get care.


During the merger discussions, the partners agreed that the Directives would continue to apply on the former Catholic campus. No restrictions apply to services provided by the main campus (the medical center), however. The Bishop, who had supported the affiliation, did not object to the system performing terminations of pregnancy since no elective abortions are provided. Informants anticipated that the Catholic constituency would object to the provision of euthanasia should the issue come up in the future.

Following the merger, the system identified a women's service line as one of its seven major products. This has established an organizational structure to support the provision of women's services and a commitment that women's health care needs will be an important focus of the system's activities. The service is led by a team including a physician, a nurse midwife, and an administrator. Currently, it focuses on obstetrical and gynecological care and includes a community education program on midlife issues. All reproductive services that were provided by the medical center, including abortions, continue to be offered by the new system. The system does not operate a family planning clinic. All women's services are provided on the non-sectarian campus and none are provided on the former Catholic campus. (Outpatient gynecological surgery is actually the only ambulatory surgery that is not provided on the former Catholic campus.) This decision was made by system administrators to avoid potential barriers to the provision of certain services in the future. The system's conscience clauses were revised to clarify that employees who are unwilling to participate in certain procedures, for ethical or moral reasons, can be excused. Women's services are provided both by physicians and non-physician providers (certified nurse midwives and nurse practitioners). The system has good working relationships with the community women's health center but no formal relationships with the local Planned Parenthood.

The system seems to have fulfilled two goals with regard to women's services: the cesarean section rate was decreased to 15%, and the breast care center is operational. The breast center provides coordinated breast care services and is led by a multidisciplinary team. The system is now working to fulfill two new goals: strategic plans for a women's inpatient unit and a birthing center have been developed by the leadership team and distributed to senior administrators for comment and review. These plans have been formulated in response to community assessments of women's needs.

Community assessments of women's needs are done in different ways including monthly meetings between hospital providers and community women (focus groups) and surveys that assess family planning needs. The women's service leadership team also works closely with a state-wide advisory group to assess needs and has been soliciting input from community based organizations to ensure service coordination. In addition, directors of area health and human service organizations are invited on a yearly basis to meet with the administration to identify service gaps and prioritize health care needs. These interactions have resulted in the system funding a number of initiatives to support community programs (e.g. a parenting skills program, a dental clinic, and a translator service). The state health department also performs community health assessments at the county level and has identified two areas that need attention: women's health (particularly domestic violence) and children's health (particularly alcohol abuse and smoking). The system recognizes the importance of these social issues and works with the health department to plan and fund interventions.

Impact on the Community

A strong sense of loss of the Catholic hospital has made it difficult for many in the community to recognize the broader impact of the merger. Some community members are concerned that choice in hospital care has diminished and that it is difficult to maintain a caring atmosphere within a larger organization. According to key informants, the positive outcomes of the merger include cost reductions, service coordination, and expansion of education and health promotion programs. The latter has resulted primarily because of a shift in focus from tertiary/trauma care to primary care/prevention. The system is also well-positioned for future changes in the health care marketplace as a result of integrating hospital and physician services under one umbrella.

A new position for a Vice President of Community Health Improvement was created during the merger. The V.P. works with the state health department to meet the goals of Healthy People 2000, a national initiative to improve the public's health. An assessment of system services was completed based on the objectives of the national report; health program and service development activities also will be conducted consistent with these goals. The system provides outreach to underserved populations through clinical services in underserved areas and also through education programs. In addition, the system is promoting the development of school-based clinics, in which education about reproductive health issues will likely be a focus.

The system's strategic plan reflects a commitment to the community. The plan focuses on six areas: (1) community health improvement (through investments in health promotion and education); (2) primary care (through the development of satellite clinics); (3) care re-design (by shifting from an inpatient to outpatient focus); (4) network development; (5) integrating finance and delivery (by creating a new health plan sponsored by the system); and (6) corporate culture.

There is recognition that time and effort need to be invested to address two related issues: community feelings of loss of the Catholic hospital and the nurturing of one culture for the merged organization. A culture committee was formed to improve internal and external communications and to bring together the disparate cultures of the partners. A new dynamic head for the pastoral care department was appointed, and the V.P. of Mission is negotiating a new role as V.P. of Mission, Values and Ethics. In addition, two surveys were conducted recently to help the administration better understand emerging cultural issues: a spirituality survey, in which administrators evaluated each other's values, and a survey of employee attitudes that addressed the prevailing low morale.

Summary

It is difficult to assess the full impact of changes and strategic plans on access and quality of services in the community because little time has elapsed since the merger. Our interviews suggest that the merger will likely improve women's access to better coordinated services and will also enhance relationships among community health services organizations. Following the merger, a women's service line was created, and the breast care program was strengthened. Plans for a women's inpatient unit and a birthing center have also been developed. The merger has had little impact on provision of reproductive services to date. The non-Catholic campus continues to provide a wide range of services (including some second-trimester abortions); the former Catholic campus continues not to provide any services that conflict with the Directives. Key success factors in this case were the commitment of the leaders of the four partners to create a health care system and the early involvement and approval of the Bishop. Senior administrators identify a number of lessons learned about the merger process, including: (1) training physicians for new administrative responsibilities; (2) learning to manage culture changes; (3) investing time and effort in addressing human resources issues; (4) developing a plan for internal and external communications with accountabilities defined; and (5) setting realistic time margins around targets.