Tuesday, August 12, 2014

Healthcare Mergers, Joint Ventures and Governance

"The healthcare industry has experienced increased consolidation in recent years, and there are significant challenges in healthcare mergers that should be addressed both before and after integration. Specifically, there must be common goals, shared values, and one aligned culture within an established governance structure to create efficiencies and best practices with the combined best features of each of the consolidated entities.
As one example of the manifest need for cultural alignment, earlier this year, the HCA Midwest Health System purchased two Catholic hospitals in Kansas City (St. Joseph and St. Mary’s Medical Centers) as part of a transaction that resulted in a total of 12 hospitals, seven surgery centers and over 10,000 employees. In connection with this transaction, the HCA Midwest Health System has agreed to work with the local Catholic Dioceses of Kansas City to preserve the hospitals’ religious heritage. This is one of many examples illustrating the importance of culture and strategy as essential pieces of governance and successful integration.
For healthcare board members contemplating or engaging in mergers or acquisitions, the need for proper governance practices is magnified in the pre- and post-integration environment. If there is not sufficient discussion and alignment on cultural norms and values pre-merger, the consolidated entity will likely encounter costly challenges that could have been proactively addressed and resolved.
To execute their duties effectively, healthcare boards must engage in proper oversight of critical areas. The primary oversight responsibilities for healthcare boards can be grouped into six functional categories:
Culture – Culture is the term that describes the values, attitudes, norms, and behaviors of the entity – who they are and how they interact with one another. When two or more healthcare entities with different backgrounds merge, it is critical for them to (a) reach alignment on culture and (b) have an assured commitment for the going-forward culture before merging. Developing and maintaining the right culture maximizes the benefits of integration, allowing the consolidated healthcare system to achieve synergies and efficiencies that are possible through combined efforts that are greater than the sum of the individual capacities. Boards should devote time and attention to proactively defining, communicating and reinforcing the culture.
Talent – Emerging best practices are to have a more interactive, full-board discussion around robust succession and talent development planning for the CEO and senior management. Boards must demonstrate independence in undertaking executive compensation and evaluation decisions.
Strategy – As the oversight duties for boards increase, trustees are taking a more active role in assuring that their entity has a strategic plan that the trustees fully understand and jointly own with management. Involvement in the strategic process is best achieved through a meeting or retreats after integration devoted to strategy that not only educates on strategic issues, but also permits the trustees to have informal time together to promote collaboration through socialization and trust building. Such meetings allow boards and management to mutually develop their respective macro and micro roles – an invaluable asset for the consolidated system. Effective strategic plans for healthcare entities will take into account compliance and the changes on the horizon for the industry that will result from the Affordable Care Act.
Compliance – Complying with laws and regulations, while simultaneously assuring the highest ethical conduct, is largely dependent on a board’s commitment to best practices in compliance.  The government places additional compliance requirements on healthcare entities and expects healthcare boards to be aware of the applicable complex regulatory structures. The board must continually monitor the entity’s compliance risk assessments, education/prevention, and detection to ensure that all are working well on an integrated basis.
Risk – As board and trustee responsibilities increase, boards are expanding their oversight of risk management. Specific to healthcare entities, the Office of Inspector General requires an ongoing process of risk assessment. Best practice is to establish and maintain an Enterprise Risk Management program with clear allocation of accountability. The board should (a) oversee ERM and assure that it receives sufficient attention at all levels of the entity and (b) ensure that remedying of major risks is discussed by the full board and addressed in the entity’s strategic plan.
Governance – Boards should be large enough to accommodate the need for diverse skill sets, resources and experience and small enough to promote collegiality, flexibility and effective participation. Some healthcare boards are decreasing the size of the board and creating a board of visitors or board of advisors. Thus, the board operates more effectively while still involving well-respected advisors who provide access to experience, resources and networking. To this end, best practices today are for a nominating and governance committee to create a template of needed skills and character attributes for full board input and approval. The approved template is then used to ensure board searches are based on needed skills and required attributes."

Bill Ide is a partner at McKenna Long & Aldridge LLP.

Tuesday, July 15, 2014

Hire a Chief Integration Officer - not an "Information Officer," and here's why:

CIO.com:

"Peter High, a contributor at Forbes.com, typically focuses his column, “The First 100 Days” on CIOs settled in at corporations. He turned things around recently with an interview with the man he calls the “Greatest CIO for Hire in History.”
That’s quite an accolade, but High argues that Charlie Feld, one of the “first outstanding CIOs in corporate America” deserves the title because he left a lucrative and powerful position at Frito-Lay to form The Feld Group. As High writes, “Along the way, many Feld Group employees went on to become CIOs at the companies that they consulted to, and therefore, Charlie Feld’s influence in the world of IT can be measured not from his own significant contribution, but also from the contribution of the many leaders who he spawned.”
In 1992 Feld founded The Feld Group. According to his official bio at The Feld Group Institute,  in 1997 "CIO magazine named Feld “One of the 12 Most Influential IT Executives of the Past Decade” and in 1998 Computerworld named Feld as one of “25 IT People to Watch in 1998.” In 2001 he was named one of the top 5 CIOs and sold his company in 2004 to EDS. After retiring as a Senior Executive Vice President and member of EDS’s Executive Committee, he founded The Feld Group Institute in 2009.
Feld makes some astute observations in his Forbes interview – chief among them how IT’s relative youth at 50 years old hinders executives who have been talking business for centuries. “Senior executives are reasonably conversant in most of the business disciplines.  They can generally engage in strategy conversations around Finance, HR, Manufacturing, Sales, Distribution, etc.  These professions have been around for centuries and have common languages, frameworks and ‘rules of thumb’ that enable the dialogue.  IT is in its early stages, being less than 50 years old and lacks these essential building blocks,” Feld says.
He also spoke to how the role of Chief Information Officer needs to evolve to become Chief Integration Officer in the interview. “The new robust integration fabrics that are event enabled, in memory-in motion, become great enablers that can embrace the heterogeneity of legacy, cloud, sensors, GPS, functional packages, customers, suppliers and employees.  That’s why I’ve been so bullish about the CIO becoming more that the Chief Information Officer,” Feld says.
That’s an opinion shared by many others, including Mat Ellis, CEO and founder of Cloudability. who writes at TheNextWeb.com, “These challenges of interconnectedness are playing out in parallel inside the enterprise. CIOs have a once in a lifetime opportunity to provide the leadership needed to guide their companies through these challenges. Done right, the I in CIO becomes less about managing information and more about managing integration.”
Feld offers practical advice for those seeking to become CIOs. The secret isn’t being great at technology or business. It’s being pretty good at both. “You don’t have to be the best technician in the company or have the best business mind. You just need to be pretty good at both.  I’m starting to see that happen in companies I’m currently engaged with.  They are the renaissance leaders and they are working hard at developing their next generation,” he opines.
But it also helps to have a defined career path, Feld adds, sharing PepsiCo’s path that he says help develop well rounded CIOs. “A high potential college graduate would see the IT organization from a number of portals during their first 10 years.  Typically, they would spend a couple of years in Data Center operations, followed by 3-4 years in Development.  The next assignment might be in Systems Engineering and finally a 2-year tour in a business function as a major user of IT Systems,” he says."