http://www.wiley.com/legacy/wileychi/ginter/supp/Case_6.pdf 1. Perform an analys
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Question
http://www.wiley.com/legacy/wileychi/ginter/supp/Case_6.pdf
1. Perform an analysis of the external environment that pushed Tufts/NEMC into the failed merger with Lifespan. Your analysis should be an identification and description of the external factors and/or events that led up to the failed merger.
2. Perform an analysis of the internal environment following the failed merger with Lifespan. Your analysis should be an identification and description of the internal factors and/or events that led up to the failed merger.
Explanation / Answer
1. In the mid - 1990s, Tufts – NEMC began to actively look for a partner to remedy its fiscal dilemmas. It needed more clout against the health plans, more referrals from community hospitals, and a partner with deep enough pockets to help pay for growth to compete with Partners, CareGroup, and the other Boston systems. It was in talks with Columbia/HCA, a for - profit hospital chain from Tennessee that wanted to expand its presence in New England. If the merger went through, it would be the first AMC owned by a for - profit company in New England. This did not sit well with some of the board members, faculty, and community, who strongly wanted to preserve Tufts – NEMC ’ s non - profit nature.
Lifespan Corporation is a regional non - profit hospital system formed in 1994 with a merger of the Miriam and Rhode Island hospitals. Tufts – NEMC leadership saw benefi ts to joining with Lifespan, such as needed capital, a chance to gain back the Harvard Pilgrim Health Care contract, and the potential referrals from the Rhode Island system. On Lifespan ’ s side, Tufts – NEMC was enticing for its status as an AMC, its base in Boston, and its expertise in high - level care. The merger would create, as one journal wrote, “ a $ 1.5 billion, 14,500 - employee health care giant with the ability to serve 70 percent of the entire New England market ” and would rival the $ 1.8 billion Partners system and $ 1.1 billion CareGroup and in January 1997, Tufts - NEMC and Lifespan officially announced the merger.
The external factors and/or events that led to failed merger was that Rhode Island regulators objected to large amounts of capital migrating to Boston and required Lifespan to reduce the amount Tufts – NEMC was to receive to $ 8.7 million a year for 10 years, down from 30 years as originally planned. Physicians make their own decisions about where they refer. Physicians like to refer primarily based on personal and professional relationships. A secondary reason they didn ’ t refer to Tufts – NEMC was they felt that if they started to support a program here they might never get approval within the Lifespan system to get that program down in Rhode Island.This was a unique system since there were two medical schools – Brown and Tufts. The Brown faculty wanted to have the programs, like bone marrow transplants, in Rhode Island. So there was a certain reluctance to cooperate at times which led to one of the main reasons of failed merger.
Lifespan and Tufts – NEMC agreed to separate at a cost of $ 30 million to Tufts – NEMC. Financial results for Tufts – NEMC for fi scal year 2002 were dismal – a loss of $ 12.3 million on revenue of $ 476 million; and 2003 was looking worse– a loss of $ 38.5 million on revenue of $ 582 million. The Massachusetts Attorney General ’ s offi ce stepped in to ensure that the hospital would meet bond covenants. The hospital also began to look at selling some of its 1.5 million square feet of prime real estate to gain needed capital. The board, meanwhile, set about looking for a leader who could take Tufts – NEMC out of the shadow of Lifespan and orchestrate a true turn around.
These are the few main external factors which led to failed merger.
2. Internal problems with the merger was the ‘ brain drain ’ . Lifespan took many of the administrative and support functions out of Tufts – NEMC and centralized them in Rhode Island. Tufts – NEMC lost their human resource, fi nance, purchasing/ supply chain, and IT – an area where Tufts – NEMC had been ground breaking in the past. The anticipated growth in acquisitions also failed to take place. Thus making the Tufts – NEMC vacated with experienced professionals from various fields. But perhaps the worst thing about the merger was that insurance contracting was done in Rhode Island. Lifespan did not understand the cost of doing business in the Boston market and therefore settled for reimbursements rates far below the average for an AMC in Boston.
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