Nonprofit Hospitals’ Merger Temporarily Blocked

April 6, 2012; Source: Wall Street Journal

At the request of the Federal Trade Commission (FTC), a federal judge in Rockford, Ill. has temporarily halted the proposed merger of St. Anthony Medical Center and Rockford Memorial Hospital. The issue has been referred to an FTC administrative law judge who will begin hearings on the merger on April 17. OSF HealthCare owns the 224-bed St. Anthony, while the 396-bed Rockford Memorial Hospital is part of Rockford Health System. Both are nonprofit. The FTC—which is reportedly “targeting deals it says create local health care monopolies”—is concerned that the merger of the two hospitals could increase the cost of care in the city. The hospitals’ CEOs issued a joint statement disputing that claim and asserting that merging two of the three area hospitals would save $15 million or more annually as well as better position the hospitals to adapt to emerging regulations associated with health care reform legislation passed in 2010.

In addition to the Rockford, Ill. merger assessment, the FTC is also scrutinizing potential nonprofit hospital mergers in Toledo, Ohio and Albany, Ga. Much has been written in recent years about the advisability of considering nonprofit mergers as a way for nonprofits to adapt to economic downturns, tighter operating margins and more competition for donations, among other financial challenges. However, mergers come with direct costs, indirect costs, and consequential costs. These costs can be expressed in dollars, but are more often felt in terms of service disruption and cultural change as two or more institutions become one.

The two hospital CEOs in the Rockford example cite savings of at least $15 million a year, but don’t mention the costs to complete the mechanics and cultural assimilation of a merger. This missing information makes the exact “payout” for the merger impossible to assess. $15 million is only about three percent of the combined hospitals’ annual revenue. Any organization evaluating a merger should carefully assess the value of saving three percent alongside the monetary and cultural costs of doing so. Nonprofit organizations have an additional responsibility and burden to assess the community impact of such a merger. There are many ways to collaborate, cooperate, share resources, and serve a community in challenging times. A merger is often a more radical solution with a long time horizon before any net benefits are realized. –Michael Wyland

About

Michael Wyland

Michael L. Wyland, CSL, has more than thirty years of experience in corporate and government public policy, management, and administration. An expert on nonprofit governance and public policy issues, he has been featured and quoted extensively in media including The Wall Street Journal, The New York Times, CNN, Fox News, Washington Post, The Chronicle of Philanthropy, and The Nonprofit Quarterly. He currently serves as an editorial advisory board member and contributor to The Nonprofit Quarterly, with more than 100 articles published since 2012. Michael is a partner in the consulting firm of Sumption & Wyland. Founded in 1990, the firm provides board governance consulting, public speaking and training, and executive coaching to nonprofit organizations. Sumption & Wyland has assisted more than 200 nonprofits with strategic planning services from pre-retreat research to staff-level implementation assistance and effectiveness monitoring. Speaking topics include board-CEO partnerships, nonprofit executive transition issues, and overviews of the nonprofit sector of the US economy. Michael was born in Washington, DC and raised in the Northern Virginia suburbs. Prior to co-founding Sumption & Wyland, Michael managed the computer operations for an independent oil & gas investor in Dallas, Texas and served as a staff assistant to a U.S. Representative. During his college years, he spent one summer working at the US Department of Labor and one summer working at the US Department of Justice. His past volunteer service includes various leadership positions at the local, state, and national level with the Young Republicans. He has been the secretary and president of a condominium homeowners association and the treasurer of a professional association serving computing professionals. He served as a Trustee and Vice President of Sertoma Foundation, and has been elected president of his local Sertoma club twice. In 2014, Michael was elected Chair of the South Dakota Commission for National and Community Service (Serve SD), on which he has served since its founding in 2011. He is currently working as a senior advisor to establish a national charity dedicated to the elimination of prejudice, expanding the scope and reach of the 120-year old Pi Lamba Phi fraternal organization. Michael's writing for NPQ often addresses healthcare policy and governance, scandals involving nonprofits, and the governance and policy implications of nonprofit stories in the news. He was widely quoted and cited for his work analyzing the governance issues related to the Jerry Sandusky/Penn State/Second Mile scandal in 2011. More recently, he has written more than 30 pieces for NPQ relating to the IRS scandal. In addition, he presented a paper at the national 2014 ARNOVA Conference about the IRS scandal and its implications for regulation of political activity by nonprofit organizations. Michael lives in Sioux Falls, SD with his wife, Margaret Sumption, and their dog. They have one adult son. In his leisure time, he likes to read histories and biographies, play golf, cook, and be a companion to his wife.