Case Study - The Merger of Two Competing Hospitals This case highlights the process of merging two fully accredited hospitals, both of which have a full complement of state-of-the-art diagnostic technology, including MRI and CAT scanners, 24-hour physician-staffed emergency care centers, and specialized women’s centers. Both of these facilities are located in a community of 60,000 in the southeastern part of Idaho. The success of the merger hinges on the timely resolution of several issues that the executive staff implemented, mutually enhancing solutions in the areas of: (1) leadership, (2) culture adaptation, (3) human resource management, (4) staffing, and (5) benefit issues. Overview Hospital A: Porter Regional Medical Center (PRMC) Located on the east side of town, Porter Regional Medical Center (PRMC) was a for-profit hospital, consisting of 110 hospital beds, 8 of which were reserved for transitional care. PRMC was a privately owned facility. Mountain Health Care (MHC), a large healthcare organization in the Rocky Mountain region, owned the facility. Built in 1990, the facility was designed to efficiently handle patient flow from the emergency room to the pharmacy and to be a point of referral for more complicated patient conditions. PRMC services consisted of general and same-day surgery and full-service rehabilitation and radiology departments. Other services included a kidney dialysis center, on-site retail pharmacy, a regional Red Cross blood bank, 24-hour laboratory, home health, Infusion/Home IV, and a women’s center, including obstetrics and numerous other amenities. Other assets owned by PRMC were the adjacent medical office buildings, a day care center, the land on which an assisted living center was located adjacent to the hospital, and the sports medicine complex adjacent to the state university’s arena. These assets represented 188,000 square feet of facility space housed on 63 acres. The hospital employed 450 personnel. Last year, the hospital’s operating budget was $34 million. However, in the same year, the hospital experienced a $1 million loss, and a projected $500,000 loss was anticipated for the following year. After three years of red ink, PRMC decided to liquidate. Hospital B: Banner Regional Medical Center (BRMC) and Turner Geriatric Center Built in 1951, Banner Regional Medical Center (BRMC), a county-owned hospital, was located on the west side of town. The hospital structure included 154 inpatient beds and a geriatric healthcare center that consisted of 100-106 beds, 15 transitional care beds, and 7 rehabilitation beds. A medical office building with a parking structure was located adjacent to the hospital. The campus consisted of 561,366 square feet of building space, housed on 6 acres. The hospital’s operating budget for last year was $79 million. BRMC had a reserve fund of $20 million earmarked for major renovations to the existing facility’s emergency room and intensive care unit. BRMC’s servi ...

1. Case Study - The Merger of Two Competing Hospitals
This case highlights the process of merging two fully accredited
hospitals, both of which have a full complement of state-of-the-
art diagnostic technology, including MRI and CAT scanners,
24-hour physician-staffed emergency care centers, and
specialized women’s centers. Both of these facilities are located
in a community of 60,000 in the southeastern part of Idaho.
The success of the merger hinges on the timely resolution of
several issues that the executive staff implemented, mutually
enhancing solutions in the areas of: (1) leadership, (2) culture
adaptation, (3) human resource management, (4) staffing, and
(5) benefit issues.
Overview
Hospital A: Porter Regional Medical Center (PRMC)
Located on the east side of town, Porter Regional Medical
Center (PRMC) was a for-profit hospital, consisting of 110
hospital beds, 8 of which were reserved for transitional care.
PRMC was a privately owned facility. Mountain Health Care
(MHC), a large healthcare organization in the Rocky Mountain
region, owned the facility. Built in 1990, the facility was
designed to efficiently handle patient flow from the emergency
room to the pharmacy and to be a point of referral for more
complicated patient conditions. PRMC services consisted of
general and same-day surgery and full-service rehabilitation and
radiology departments. Other services included a kidney
dialysis center, on-site retail pharmacy, a regional Red Cross
blood bank, 24-hour laboratory, home health, Infusion/Home
IV, and a women’s center, including obstetrics and numerous
other amenities.
Other assets owned by PRMC were the adjacent medical office
buildings, a day care center, the land on which an assisted

2. living center was located adjacent to the hospital, and the sports
medicine complex adjacent to the state university’s arena. These
assets represented 188,000 square feet of facility space housed
on 63 acres. The hospital employed 450 personnel.
Last year, the hospital’s operating budget was $34 million.
However, in the same year, the hospital experienced a $1
million loss, and a projected $500,000 loss was anticipated for
the following year. After three years of red ink, PRMC decided
to liquidate.
Hospital B: Banner Regional Medical Center (BRMC) and
Turner Geriatric Center
Built in 1951, Banner Regional Medical Center (BRMC), a
county-owned hospital, was located on the west side of town.
The hospital structure included 154 inpatient beds and a
geriatric healthcare center that consisted of 100-106 beds, 15
transitional care beds, and 7 rehabilitation beds. A medical
office building with a parking structure was located adjacent to
the hospital. The campus consisted of 561,366 square feet of
building space, housed on 6 acres. The hospital’s operating
budget for last year was $79 million. BRMC had a reserve fund
of $20 million earmarked for major renovations to the existing
facility’s emergency room and intensive care unit. BRMC’s
services included the Herman Cancer Center, Family Centered
Care (Ob/Gyn), a newborn intensive care unit, a women’s
center, Life Flight (mobile intensive care), a regional pediatric
unit, a geriatric center, and a sports/industrial medicine clinic.
The hospital had a staff of 914 employees.
While the majority of the services were housed at BRMC, the
home health administrative offices and the physical therapy
departments were housed at different locations in the same
town. For strategic planning purposes, management knew that
the hospital’s viability depended on the necessary action to
expand and renovate the facility to meet the needs of its current

3. market.
The stage was set for the consolidation of the two competing
hospitals: PRMC, crippled with three years of losses, and
BRMC, struggling with aging facilities. The process would take
the next three years to complete the merger and create a new
facility. BRMC’s board of directors offered the facility to the
county, so as not to let an outside organization compete for its
resources and patients. The county would pay $25 million, to be
paid in increments of $15 million at the time of purchase and
$10 million over the next two to three years, interest free. The
CEOs of PRMC and BRMC, Pat Herman, MHA, FACHE, and
Scott Johns, MBA, had applied for the single hospital
management slot. A consulting firm from Seattle was hired to
review the resumes, experiences, and job performances of both
men. In the end, the commissioners voted to hire Herman, who
had more than 20 years as an administrator for a Catholic
institution and had been the chief communication officer for a
military academy.
Consolidation
In the fall, the chairs of each hospitals board met to discuss
options for cutting healthcare costs, addressing the shortage of
healthcare personnel, and improving the delivery of health care
in the community. The following spring, a letter of intent to
consolidate was sent from BRMC to MHC. Three months later,
an agreement was solidified with the following requirements:
1. The consolidated hospital would have a new name; and
2. A transitional team, including the previous CEO of PRMC,
would be assembled to deal with management changes and
employee benefit packages.
Other requirements included a new mission statement, a policy
that no workers would be laid off as a result of the merger, and

4. a newly elected 15-member hospital board, comprised of 10
BMRC board members and 5 PMRC members. Public meetings
were held by board members and hospital administrators to
answer questions and explain the merger process. During the
meetings, the public voiced concerns that consolidation would
destroy competition in the area, leading to an increase in
healthcare costs and a decrease in services and quality. In
preliminary employee meetings, the staff expressed concerns
over seniority, job placement, compensation, and benefit
packages.
Leadership
Leadership style at BMRC could be characterized as
participative, autonomous, and self-governing. As CEO of
BRMC, Pat Herman’s initial job was to rebuild the executive
team that had been depleted by the retirement of the outgoing
CEO, the serious illness
of the director of nursing services, and the departure of the vice
president of human resources.
PRMC operated as a subsidiary of MHC, whose corporate office
made all policy and strategic management decisions. Lower-
level managers were not highly involved in the decision-making
processes at MHC. Management, therefore, was highly
structured and centralized. Consequently, the management team
at PRMC relied on the corporate office for the day-to-day
operations of the hospital.
To embrace the new entity, the community decided to name the
consolidated hospital Portsmith Regional Medical Center. At the
time of the merger, there was a combined staff of more than
1,400 employees. The staff at both PRMC and BRMC in
duplicate management positions had to compete for their jobs.
Approximately 90 employees decided to retire. By the
conclusion of streamlining positions, 1,200 employees were part

5. of the new organization.
Herman conducted 30 to 40 meetings with the staff and met
weekly with the managers to answer their questions and
concerns. The employees were encouraged to express their
feelings. Employees were given access to the EAP program,
social workers, and one employee relations person to help cope
with their fears and apprehensions.
Culture Adaptation
Cultures in organizations are manifested in language, physical
settings, values, symbols, and formal procedures. As a single
entity, BRMC had developed an autonomous, independent, self-
directed culture. PRMC’s culture was much less independent
and relied heavily on the corporate office for its decision
making, policy development, and operating procedures. These
factors greatly influenced the culture of each organization and
the final impact on the consolidation of the new entity.
PRMC and BRMC referred to each other in competitive
language. There were many references to “them” versus “us”
within the organizations. The language was indicative of the
entrenched processes, cultures, loyalty, and systems that had to
be addressed in the consolidation.
Both organizations had symbols that represented their cultures.
Each organization had a logo that symbolized who they were
and what they represented. PRMC had a vision and mission
statement developed and defined by the corporate office, while
BRMC, on the other hand, did not have a clearly defined
mission and vision statement. Although BRMC’s board and Pat
Herman had determined their vision and mission statements for
the future, these statements were not clearly defined and were
not communicated to the staff.
Human Resource Management

6. A year after the merger, a new vice president of human
resources, Dale Miller, was recruited from a Catholic healthcare
system in Kentucky to handle the newly merged hospital. Miller
had extensive experience in mergers and acquisitions. Soon, he
realized that the merger included more than the consolidation of
duplicated services. The merger also brought together two
different hospital boards, two separate groups of physicians and
staff, and two different benefit packages.
Staffing
There were several major staffing concerns for the consolidated
hospital. Six months prior to consolidation, PRMC and BRMC
had to develop a joint medical structure that included
leadership, credentialing, bylaws, rules and regulations, and
peer review. Both hospitals had three medical staff leadership
positions: chief of staff, vice-chief, and secretary, for a total of
six physicians. A process was developed to consolidate these
six positions to four. Four of the existing physicians’ names
were recommended to the medical staff and subsequently, the
staff voted to retain all four to lead the new, consolidated
medical staff. BRMC’s Dr. Gene Roberts became the new chief
of staff of Portsmith Regional Medical Center.
The next step required evaluating the different bylaws, rules,
and regulations for each medical staff at PRMC and BRMC.
Through a ballot, the two medical staffs decided to adopt
bylaws, rules, and regulations that reflected their joint decision-
making efforts. Credentialing the two medical staffs required
interventions by a legal team. Since every physician must be
credentialed every two years, both hospitals had to develop a
timeline that would meet the Joint Commission’s standards that
would keep physicians' credentials current with the time of
consolidation. For example, if a physician’s time for
credentialing would put him/her out of compliance, then the
credentialing timeline had to move to the shortest time in order
to maintain his/her current license. Since each hospital had

7. different peer review/quality standards, the newly elected
medical executive team and staff voted to modify and adopt
PRMC’s more stringent, well-documented standards. By the
time of consolidation, 160 physicians at PRMC and 180 medical
staff at BRMC had completed a smooth transition with only five
physicians choosing to leave.
Another staffing issue was with the nursing department. An
analysis of the combined workforce revealed that in nursing
services, the ratio of RNs to LPNs was disproportionate (70%
LPN to 30% RN). This ratio was opposite what was needed for
the planned high-tech services to be offered by the merged
organization, which included cardiovascular, open heart, heart
cauterization labs, cancer centers, and four call centers of
excellence. These centers of excellence required a higher level
of specialty nursing than was needed previously. The nursing
staff ratio needed to be changed to a 60:40 RN to LPN ratio as
rapidly as possible.
In addition, the staff analysis revealed that the skill levels of
other existing staff needed to be developed rapidly in order to
perform in a more technically advanced environment that
included picture archiving computerization systems, electronic
medical records, and new patient systems technology.
Benefits
Each hospital offered its employees benefits that included sick
leave, paid time off, health insurance, life insurance, and
retirement plans. Paid time off and sick leave were accrued at
different rates at each hospital. BRMC was self-insured, while
PRMC offered its employees a fully insured healthcare plan. In
addition, healthcare coverage, deductibles, premiums, and out-
of-pocket costs varied between the hospitals. PRMC employees
feared that they would lose benefits if they moved to the BRMC
retirement system. In the end, 90 BRMC employees opted to
leave the organization for fear of

8. losing their benefits. Another group opted to stay in order to
obtain a better benefit package.
Two months later, the newly formed board and executives,
including Herman and Miller, met at a planning retreat in
Jackson, Wyoming, to decide how to best resolve leadership,
culture adaptation, human resource management, staffing, and
benefits issues.
Construct a response in which you discuss the following:
· What specific steps should the board take to create an
executive team to manage the newly created organization?
· Given the diversity of cultures embedded in the merged
organization, what should the management team do to facilitate
a working culture in the new organization?
· How should management deal with the physical structures at
the time of the consolidation?
· How should the duplication of services and departments be
handled?
· What are the risk management issues and legal issues
associated with the merger?
· How can the board and administrators calm the fears of the
staff before, during, and after the consolidation?
· How do the physicians work with administration to share
power and resources within the newly consolidated hospital?
Due Tuesday 4.12.16
APA…. No page limit