THE ROLE OF THE HEALTHCARE EXECUTIVE IN A CHANGE IN ORGANIZATIONAL OWNERSHIP OR CONTROL
November 2000 (revised)
November 2005 (revised)
November 2010 (revised)
November 2011 (revised)
November 2014 (revised)
Statement of the Issue
Changes in organizational ownership or control can take several forms including, but not limited to, consolidations, mergers, acquisitions, affiliations, divestitures and closures. Each type of change presents unique challenges for healthcare executives, and actions needed will vary by type of arrangement. In addition to potentially impacting the staff of the organization and the local economy, such changes can impact a community's access to cost-effective, quality healthcare services.
The American College of Healthcare Executives (ACHE) believes CEOs, their boards and members of their senior management teams should take a comprehensive approach to assessing the benefits and risks of a change in ownership or control, including the impact on all stakeholders and the consequences for community health status. To this end, ACHE offers the following as a guide.
When initially considering a change in ownership or control:
- Identify your organization’s values and goals.
- Clearly articulate the reasons for considering a potential change in ownershipâ€”the anticipated benefits, risks of not undertaking a change and the desired outcomes.
- Establish specific criteria that should be used to evaluate various proposals regarding change of ownership or control.
- Understand any legal limitations of your organization’s certificate of incorporation, articles of organization, charter or other binding documents that may restrict consideration of alternatives.
- Conduct a feasibility study to assess various options for change that may be available to your organization and community, specifying the risks and benefits of each option as well as their impact on the community, staff and other stakeholders.
- As early as is feasible, engage the broader community in understanding the rationale for considering a change in ownership or control.
- Consider severance agreements for selected executives and employees who will assess potential community and organizational impact of the proposed change so as to remove or lessen self-interest concerns related to loss of position and income.
When considering specific proposals related to change of ownership or control:
- Establish a multifunctional team to evaluate proposals, including outside experts as needed.
- Undertake a systematic evaluation of the options in relationship to the organization's established criteria for undertaking a change, considering issues such as governance, financial, operational, legal, human resource and clinical implications, as well as community impact and fit between the organization's culture and that of a potential partner.
- Identify financial incentives that may have an undue influence on the views of board members, executives and others involved in proposing and evaluating any change in ownership or control.
- Disclose all conflicts of interest (both real and perceived), offers of future employment or future remuneration and other benefits related to the transaction.
- Gain a thorough understanding of all the terms of the proposed transaction and of all collateral agreements.
If the decision is made to proceed with a change of ownership or control:
- Establish a multifunctional team to oversee the final due diligence process and implement the transition.
- Develop and implement a phased communications plan that involves and informs all constituencies regarding the rationale for the change in ownership or control, the decision-making process that was undertaken and the pending implementation process.
- Inform and seek approvals from the appropriate federal, state and local officials of the terms of the transaction in accordance with their requirements.
- In change of ownership or control situations leading to the creation of a foundation or charitable trust, obtain an independent, third-party valuation of assets being converted or restructured and ensure control and administration will be distinct from the restructured healthcare organization.
- Develop and implement a plan that provides for fair treatment of all employees impacted by the change.
- Prohibit private inurement by individuals involved in evaluating or implementing the change.
In addition, ACHE members also have a personal responsibility to:
- Abide by the standards set forth in the ACHE Code of Ethics.
- Place community and organizational interests above personal pride, ego or gain.
- Carry out the fiduciary responsibilities of their positions.
- Conduct all negotiations with honesty and integrity.
As consolidation and related activities continue in the healthcare field, organizations and their executives will be under increased scrutiny. Through their words and actions, executives must demonstrate their business decisions are guided by professional ethics and a commitment to improving community health status.
Approved by the Board of Governors of the American College of Healthcare Executives on November 10, 2014.
“Mergers, Acquisitions and Partnerships,” Healthcare Executive, July/August 2009.
Zuckerman, Alan M., FACHE. Leading Your Healthcare Organization Through a Merger or Acquisition. Chicago: Health Administration Press (2010).
“Mergers and Acquisitions: A CEO Roundtable,” Healthcare Executive, September/October 2010.
“Mergers and Acquisitions: Coming Together Without Falling Apart.” Frontiers of Health Services Management, Vol. 27, No. 4 (2011).