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Merging Two Community Hospitals
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Veralon Cases & Insights

Merging Two Community Hospitals

Client/Profile

A 200-bed community hospital and a 25-bed critical care access hospital serving a common service area

Challenge/Situation

To analyze and validate a contemplated merger between two hospitals serving the same community and similar service areas. After several years of discussion, the hospitals had developed a preliminary memorandum of understanding outlining the organizational framework of a potential affiliation. The larger hospital offers a full range of primary and general tertiary healthcare services and maintains a large, diverse medical staff. The smaller hospital provides basic critical access services and maintains a small osteopathic medical staff of mostly primary care physicians.

The hospitals sought identification of revenue enhancement and cost saving opportunities, as well as advice and recommendations pertaining to the organization, management and medical staff structures, and other aspects of the definitive agreement.

Process

Veralon worked with the client to define the areas to be evaluated in relation to the merger. These included governance and management structure, medical staff integration, clinical programs, operations and use of capital resources and financial/economic outcomes. Veralon then developed a detailed understanding of the two organizations and the proposed affiliation structure through a review of documents and data and by conducting in-depth interviews with key board, management and medical staff stakeholders.

Each of the core areas were then evaluated within the context of the potential affiliation structure. More detailed analysis was devoted to unique challenges of the affiliation, including:

  • Medical staff credentialing and integration
  • Department-specific operational efficiencies and cost savings
  • The development of financial estimates for annual capital investment for facilities and infrastructure
  • Potential incremental operating expenses
  • Potential incremental savings.

Under attorney-client privilege, Veralon also prepared a separate confidential analysis of third-party contracting and reimbursement considerations potentially resulting from the affiliation structure.

Results

Veralon’s validation process resulted in specific recommendations and supporting analyses for each of the core affiliation areas. The affiliation was successfully implemented and the projected benefits were realized.