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

III. Case Study C

In 1994, a Catholic and a Protestant hospital received approval from the Department of Justice (DOJ) to consolidate. Both facilities were located in the Mid-West in a mid-size city known for its production of agricultural equipment and supplies. The community was described as aging and as "conservative" and "religious." The Catholic hospital was a 265-bed acute care facility serving a low- to middle-class population and was characterized by its family-oriented culture. Located 2.5 miles away, the Protestant facility was a 237-bed acute care provider serving a community of middle class, well-insured people and was known for its business-like, "high tech," and data-driven culture.

A non-sectarian 502-bed Medical Center comprised of the two facilities emerged from the consolidation and is operating under the auspices of a corporate parent organization (the Catholic property was alienated during the consolidation). The Center's new name reflects a futuristic orientation as much as a religious orientation. The Catholic hospital was renamed West campus, and the Protestant facility was renamed East campus. The system also includes a medical group of employed physicians and a health plan. Center administrators maintain that institutional commitments to different religious ideologies that preceded the consolidation have been replaced by a transcendent ecumenical mission and that the current culture reflects a "blending" of the two former disparate management and clinical cultures. Religious artifacts continue to decorate parts of the Catholic hospital and grounds.

The Affiliation Process

Earlier Attempt at Affiliation (1970s)

The 1994 consolidation was a second attempt at affiliation between the two hospitals. In the late 1970s, primarily at the urging of their overlapping medical staffs, the hospitals had developed plans for completing a full-asset merger. Substantial resources and three years of work were invested in planning the merger. News of the proposed affiliation was not communicated, however, to the public or to the religious order overseeing the Catholic hospital until the end of the merger planning process. Various Catholic and anti-abortion groups in the community protested the merger, and argued for a continued Catholic presence in the community's health care system. The Catholic Church responded during the final hour of negotiations, stating that it would not allow the Catholic hospital to affiliate with an organization that provided abortions. The merger did not take place, and both hospitals continued to operate and compete.

Successful Affiliation (1990s)

In the early 1990s, members of the two hospitals' governing boards could no longer ignore the potential impact of more recent marketplace changes on the survivability of both the Catholic and Protestant hospitals. Although both facilities were financially healthy, the growth of managed care and the related threat of capitating payments for services were forcing the hospitals to respond proactively. In addition, local employers were closely examining their rising health care costs and analyzing the extent to which service duplication by the two hospitals was contributing to the problem. Several other hospitals in the region had already completed mergers, and this was creating increased competition and concerns about the ability of the two facilities to secure a share of the growing managed care market. These factors led to an assessment of the financial structure and operations of the two hospitals and to the boards' decision to embark on a strategy to consolidate assets and operations.

Several factors facilitated the 1994 consolidation. First, close ties existed among several board members of the two hospitals who started meeting privately to discuss a possible affiliation. Second, the two CEOs and the medical staff, many of whom worked in both hospitals, openly supported the consolidation. A third factor, and the one considered critical, involved the abortion issue. Abortions were provided at the Protestant hospital but not at the Catholic facility. The two hospitals agreed that the decision to provide or not to provide abortions in the consolidated system would be made by the new governing board after it had been formed. In other words, it was decided that the abortion issue would not be allowed to derail the consolidation. A fourth factor was that the sponsoring Catholic order recognized that the community would be best served if the two hospitals joined forces. To facilitate the affiliation, the religious order donated the hospital in its entirety to the community, on the condition that both hospitals enter into the consolidation as full and equal partners.

Toward a New Organization

Once the decision was made to pursue a consolidation as equal partners, a steering committee was organized to oversee the preparation for the DOJ review and the implementation of a consolidation plan. The consolidation team was comprised of three board members from each hospital, the two CEOs, the two chiefs of medical staff, and the two corporate attorneys.

To facilitate the DOJ review process, an experienced antitrust attorney was hired to liaise between the consolidation team and the DOJ. The purpose of hiring the consultant was to ensure that issues which had stalled mergers in the past were addressed early by the consolidation team. In particular, the consolidation would result in one institution gaining control over 80% of the local market - a factor that would historically have caused antitrust concerns for the DOJ. The hospitals demonstrated that the community's interests were served by permitting the consolidation, which would facilitate access to capital, produce cost savings, and improve the quality of care. The hospitals committed to specific financial performance targets and delineated plans for using the anticipated savings (e.g. to develop new services, expand existing programs). After 12 months of negotiations, the DOJ approved the consolidation.

Early in the process, the steering committee had selected the top administrators of the new Medical Center and operationalized the consolidation plan. The CEO of the Protestant hospital became the CEO of the new organization, and the CEO of the Catholic hospital was named the new COO. The CEO selected the management group, and several operational task forces charged with aligning services between the two campuses were formed. A consulting firm was hired to facilitate the development of a new strategic management plan and an operating plan. Specific strategies included a new mission, vision, values, and set of objectives for the institution.

A new governing board was created with equal representation from the two facilities. Five board members and one physician from each of the hospitals, and the CEO and Chief of Medical Staff of the new Medical Center were selected to sit on the new board. In addition, after the community voiced concerns that the previous boards had not beem culturally diverse, three new members from the community were appointed to the new board.

The role of the pastoral care departments of the two hospitals in the consolidation process was very limited. Strong Christian commitments continue to affect decision making and behavior, however, and are exemplified by the three ethical principles of the Medical Center (compassion, justice, and dignity) and the strong commitment to the underserved and disenfranchised. The new organization has a strong ethics committee that reviews policies with respect to clinical issues.

Community participation was solicited in forging the identity of the new institution. A consolidation newsletter was distributed by the hospital to communicate changes internally, and a hotline was established. Articles were published in local newspapers announcing the consolidation. Local community members also were asked to submit potential names for the new Medical Center.

Status of Reproductive Services

The site visit took place approximately three years after the approval of the consolidation by the DOJ. In general, women's health concerns have not been an important focus of the Medical Center's activities, and no comprehensive women's health program exists. Service gaps in the provision of preventive care, midlife services, and patient education were observed. The impact of the consolidation on the provision of reproductive services for women was described as minimal. Prior to the consolidation, both hospitals provided some reproductive services, and the new Medical Center continues to do the same. Abortions, which had been provided infrequently at the Protestant hospital, were discontinued following the consolidation except to save the life of the woman. Infertility services were not provided at either hospital and continue not to be offered. The Medical Center has no specific policy concerning family planning services.

At present, services specific to women include prenatal care, obstetrics, gynecology, sterilization, and breast care, all of which were provided by the two hospitals prior to the consolidation. A new space for labor and delivery services was being remodeled on one of the campuses at the time of the site visit to consolidate obstetrical services (around 2,300 births are provided annually ) and to expand the neonatal intensive care unit. Obstetrical services include education classes for expectant mothers (which, according to the providers, need to be updated), a high-risk pregnancy clinic, and a genetic counseling clinic. The two clinics are staffed by visiting specialists from an academic medical center in another city. A recent proposal by the directors of inpatient and outpatient services to start a birthing center, including nurse-midwifery services, was not popular among the hospital obstetricians, who were described as relatively conservative in their practice styles.

During a closed meeting immediately following consolidation, the new governing board discussed the abortion issue with the help of an outside ethicist who was consulted to facilitate the meeting. The board voted against the provision of abortion except when the life of the woman is threatened. This decision was welcomed by the community and by clinicians. The fact that the Protestant hospital had provided only a small number of abortions helped the board reach its decision, since this was considered an indication of low demand for hospital-based abortions in the community.

Currently, the only abortion provider in the area is a reproductive health clinic located in a city 50 miles away and not accessible by public transportation. Medical Center administrators assume that this provider is meeting the needs of community women for abortion care, but no assessment has been conducted to determine whether this was actually the case. Interestingly, the local Planned Parenthood affiliate has started an education center in the area and has announced plans for providing medical services, as well. This is creating a great deal of controversy in the community which, overall, is not very welcoming of Planned Parenthood's traditional services. The Medical Center has no plans to cooperate with Planned Parenthood. There are also indications of unmet needs for treatment of post-abortion complications, particularly among low-income women seeking services at community health centers, where the physicians tend to be anti-abortion.

There was disagreement among those we interviewed over the degree of "closure" on the abortion issue. Some perceived that it had been "put to rest" by the post-consolidation board decision, and that the Medical Center had reached a satisfactory accommodation internally and with the community. Others perceived that there were surfacing issues with which the organization would have to contend. These included the matter of "mandated benefits" packages in managed care plans and whether or not the abortion policy would have to be amended when non-surgical abortion methods become available. These issues had not yet reached the governing board.

The Medical Center has no specific policy concerning the provision of contraceptive services and does not operate a family planning clinic. Provision of contraception is left to the discretion of individual physicians. The Center provides emergency contraception for rape victims in the emergency room. Sterilizations--including tubal ligations and post-partum tubals for women and vasectomies for men--are performed. Infertility services are not provided for two reasons: analyses indicated that the demand for services in the community is not high enough to justify the cost, and limited infertility specialists are available in the local area. Patients requesting infertility counseling and/or treatment are generally referred to a major academic medical center 50 miles away.

Other providers of reproductive services in the community, particularly to underserved women, are a community health center and a women's health center. The Medical Center has strong working relationships with both providers, and especially with the women's health center, for which it provides backup and inpatient services. The Medical Center serves large numbers of underserved women, directly and by supporting community-based organizations. Among obstetrical patients, more than 40% are covered by the Medicaid program. Sizeable proportions of clients also belong to minority groups.

Several administrators are suggesting the development of an on-site service line for women's health that would integrate the provision of a comprehensive range of services including health education and prevention, primary care, reproductive services, and midlife services. The Medical Center is not likely to devote resources to such a program in the near future, but there is interest in providing more attention to women's health care. (A newly-formed hospital system located nearby has a well-established women's health program.) An intermediate step that providers had proposed is the allocation of resources to case manage all high-risk women clients, both medically and socially indicated. The development of case management protocols has begun as part of the quality improvement program.

Impact on the Community

The consolidation is viewed as having had a positive impact on the community, both in terms of cost reductions and quality improvements. Over $50 million were saved in the first two years following the consolidation, primarily because of limiting service duplication and increased operating efficiencies. These savings freed resources that were used to support community-based activities and also allowed the Medical Center to control its rate increases. The administrators cited a Gallup survey that was conducted to assess people's opinions about the consolidation as evidence of the community's support of the Medical Center.

The consolidation is impacting the community in different ways. First, support of community health projects has increased. For example, the Medical Center recently provided a grant to the community health center to help construct a new building. The Center also sponsors the local Race for the Cure and uses part of the revenues for outreach activities and breast cancer education for low-income women. Also, a fund-raising campaign among Center employees and in the community helps subsidize services to the poor.

Second, the health system that emerged following the consolidation is expanding and diversifying its activities: in addition to owning and operating the Medical Center, the system currently owns and operates a medical group and a health plan. The medical group recruits physicians into the community and purchases and manages physicians' practices. The health plan exists for purposes of contracting with managed care organizations or with employers to provide managed care. Another hospital in the community has also become affiliated with the system, and negotiations with other hospitals are underway. Administrators noted that as the system expands and differentiates itself from the Medical Center, the range of reproductive services provided may have to be re-evaluated.

Other outcomes of the consolidation include strengthening the family practice residency program at the Medical Center and enhancing ambulatory surgery. The Center is also promoting a new role for its pastoral care department, in which chaplains are assigned to different functions in the community, in addition to their service line assignments.

Summary

This case is illustrative of a successful affiliation between two hospitals with different religious heritages. The consolidation has strengthened the two providers and expanded their role in serving the community. The consolidation has had mixed effects on service delivery to community women. Obstetrical services have been expanded. Abortion services (though they had been quite limited prior the consolidation) have been discontinued. Neither internal assessments of services provided to female clients nor community assessments of women's needs have been conducted. There is some interest, however, in developing women's health services more comprehensively.

The case offers several lessons about affiliations between Catholic and non-Catholic parties. Critical success factors here were: obtaining early support for the consolidation from the sponsoring Catholic order; deciding that the abortion issue would be addressed by the new governing board and would not be allowed to derail the affiliation; hiring external consultants to facilitate the DOJ review process and strategic planning effort; naming the executives of the new organization early in the process; and soliciting community participation in the creation of the new Medical Center. Other important factors were operationalizing the consolidation quickly to stabilize conditions and making management decisions that were sensitive to the religious heritages of the two hospitals.