The Good Merger
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Jun 1, 2015

The Good Merger

By Kellogg Insight | Based on the insights of Leemore Dafny

When two healthcare companies merge, it is often assumed (or publicly touted) that the marriage will generate measurably better outcomes or lower overall costs. But “the harsh reality is that it is difficult to find well-documented examples” of such results, according to a recently published article in the New England Journal of Medicine by Kellogg School professor Leemore Dafny, Ph.D., and Thomas Lee, M.D. All too often, mergers are simply intended to reduce competition—and that’s all they accomplish.

How can we improve the status quo? Drawing from best practices from across sectors, Dafny and Lee (scholars who once found themselves on opposite sides of the healthcare merger issue) propose several solutions.

1) Define success in advance of proposed healthcare mergers, before the mergers are consummated. It will always be tempting to put off changes that are disruptive. “Making these goals explicit not only helps stakeholders and regulators to assess the merits of a proposed deal, but it also creates public commitments that can facilitate the execution of those plans after the merger occurs.”

2) Leave no stone unturned. As in other sectors, parties should ultimately propose mergers “only after hard-nosed considerations and analyses of efficiencies” have been conducted. After all, if a merger doesn’t even add value on paper, how will it succeed for the community?

3) Evaluate outcomes based on “real and measurable improvements in cost or quality.” A lack of details is a major red flag.

You can read the entire article here.

Dafny and Lee will also be discussing innovation in healthcare leadership in a webinar on June 4. Register for free here.