Activities For The Sake Of Activities

This past weekend I attended a memorial service for Art DeNio, NorthBay Healthcare’s Chief Financial Officer, who passed away unexpectedly last month.  Art had been NorthBay’s Chief Financial Officer since 2001.  His financial prowess made possible great progress as NorthBay brought advanced medicine to its service area.  He was the best chief financial officer that I worked with during my career.

As a mark of the respect which Art had earned from the financial world, his memorial service was well attended by representatives of investment banking firms and institutional financial consultants.

Before and after the service I had an opportunity to speak to some of those representatives and what they had to say about what they were seeing in health care was interesting.

In the last few years there was a boom in financing hospital and outpatient construction projects. This was a result of delayed projects stemming from the 2008 financial crisis and extraordinarily low-interest rates which increased the ability of health care organizations to finance needed replacement and expansion projects.

This was particularly true in the non-profit segment of health care.  NorthBay Healthcare was able to issue $200 million in bonds in 2016 to finance a new patient care wing at NorthBay Medical Center which will open later this year.

Now, I was told, financing that kind of construction was at a low ebb since so many projects had been financed prior to 2018.  Instead what was happening according to one of the financial experts I spoke to was financing “activities for the sake of activities”.

That was another way of saying financing mergers and consolidations in the non-profit sector.  These kinds of organizational marriages may require a restructuring of existing debt and that is where investment bankers and others are currently making their money.

Implicit in “activities for the sake of activities” is that there is no positive net effect on the organizations involved.  To use a well-worn cliché, the deck chairs are simply being rearranged.  One expert was particularly adamant about that.

Which gets back to what I wrote about last week in “It’s The Money”.  Bigness takes on a life of its own without regard to whether anything positive is being achieved.  It almost seems like an ego driven activity.  Look Ma!  I’m merging.

To repeat myself from last week, what’s the point of this activity if patient care is not enhanced and costs reduced?   Despite all the merger and consolidation activity among hospitals and health systems, no one is writing in the New York Times or the Wall Street Journal about improved patient outcomes and less expensive care.  Lots of people are still making a living criticizing the performance of health care organizations on both metrics.

When you see this kind of aimless merger and consolidation activity I believe you are seeing an abject failure of effective governance.  When you look at the boards of a locally controlled health care organizations, you are more likely to see the regional manager of a company or a physician who practices in the community.  These are people who are closer to the marketplace and who see the consequences of their decisions.  They actually care.

When you look at the merging monsters, you are likely to see a highly placed senior manager of a national corporation or a physician who has not practiced clinical medicine for many years.  They are at a far distance from the marketplace.  That brings a different perspective, one which I contend leads to decision-making detrimental to health care delivery.  These board members who live in a rarefied world do not have to live with the consequences of their decisions.  It is just another gig.

If I am wrong, show me where patient care and outcomes have been positively affected by the constant churning of merger activity in health care.   And as for cost effectiveness being a by-product of mergers and consolidations, show me the money.

I’m waiting.