MARCH 2023 Issue Brief Rafael Gomez, El Cambio Consulting A Partnership of Equals: Early Lessons from Mergers of Similarly Sized and Positioned Health Centers Introduction remains to be seen the extent to which such merg- ers can deliver on the above promise, recent efforts California's Federally Qualified Health Centers illustrate some early lessons for other health centers (FQHCs) are responding to several important policy exploring merger. changes and reforms aimed at improving health care for the state's diverse communities. These reforms This issue brief explores the experiences of and include expanding Medi-Cal coverage to undocu- reflections upon two recent mergers of similarly sized mented Californians, initiating and implementing FQHCs in California in the last two years. Included are CalAIM (California Advancing and Innovating Medi- case study discussions of the motivations, agreements, Cal), expanding telehealth options, revising Medi-Cal and early experiences of each merger effort. Each quality standards, and adopting the FQHC Alternative presented unique lessons and challenges, and also Payment Methodology (APM), among others. FQHCs demonstrated some broader reflections and themes are being asked to develop new capabilities and to that may be applicable to other FQHCs exploring expand existing ones while continuing to struggle with merger opportunities with similarly sized and posi- historical limitations around workforce and organiza- tioned partners: tional infrastructure. Well-executed mergers between healthy and stable FQHC partners may offer a path $ Scale to deliver value and impact. Enhanced to achieve the organizational infrastructure, scale, and financial sustainability matters but may not be reach required to meet these demands and provide the main driving force to explore a "merger of high-quality, culturally responsive care to all patients. equals." Rather, a key value of a merger may be its ability to elevate the stature and capability of However, it is often thought that mergers of FQHCs organizations to advocate for and drive delivery are driven by necessity and power imbalance. A per- system change in their communities, as well as petually struggling or financially at-risk health center to bolster operational infrastructure that better turns to a larger and more stable FQHC partner for positions merged entities to pursue their goals acquisition to ensure continuity of services and stabil- of transforming care and delivering value. ity for staff. While historically this may have been true, California is increasingly seeing examples of similarly $ Leveraging service strengths. Merger pres- sized and positioned health centers exploring merg- ents an opportunity to leverage the service ers. Driven by a desire to gain scale and capability, strengths of each partner across a wider set of generational leadership transitions, and other factors, sites and geographies. This may include spread- these "mergers of equals" present unique opportu- ing specialized capabilities, such as obstetrics, nities and challenges for partnering FQHCs. While it mental health and substance use care, homeless services, care across the lifespan (e.g., senior ser- vices, pediatrics), or other capabilities. CHCF resource: Mergers and Acquisitions: A Practical Guide for Community Health Centers $ Organizational culture. Compared to a tradi- provides detailed guidance to health centers tional merger where there is a clearly dominant interested in merger on systematically exploring, FQHC partner, the merger of similarly sized and conducting due diligence on, and advancing an positioned FQHCs presents a more complex affiliation. challenge in aligning operations and develop- ing a shared organizational culture. Assessment, forethought, and aggressive investment in inte- $ Facing hard decisions early. Surfacing key grating organizational cultures and operations sticking points early, such as identifying the con- are of foremost importance and present unique tinuing CEO, organizational name and identity, challenges when similarly sized and equipped and surviving corporate identity, may pave the organizations merge. way for a successful merger process. $ Shared identity. Crafting a shared organizational $ Growing capability, not reducing staff. Many identity that reflects the expectations of both equate merger with staff downsizing or efficien- organizations in a merger of equals requires simi- cies. For the below highlighted mergers, as with lar thoughtfulness during planning. Preserving many other FQHC examples, merger did not identity and history is often particularly impor- mean staff reductions. Given lean FQHC infra- tant to boards of directors, though expectations structure (and persistent staff shortages), merger can vary widely depending on the board. So, presents more of an opportunity to bolster staff- understanding expectations and crafting agree- ing depth and departmental strength rather than ments to meet these expectations is important. identify cost efficiencies. Merger may include Organizational identity can be conveyed through shifts in leadership roles or organizational charts, multiple avenues, including corporate name, site but staffing reductions are unlikely. naming conventions, external communication strategies, and board member continuity and representation, among others. Methodology The information presented in these case studies was $ Executive leadership. The growing wave of informed by interviews with the CEOs that partici- FQHC CEO retirements in the next several years pated in the merger explorations and transitions, presents a natural inflection point and opportu- and was further supported by follow-up information nity for organizations to explore mergers. More provided by the CEOs and select senior staff. Case broadly, though, tenured CEOs may be increas- study findings were reviewed and approved by ingly willing to step back, explore modified roles, interview participants. or do both if such actions enable a merger that strengthens organizational impact and capability. $ Trust and partnership. Trust, honesty, and communication, particularly between CEOs, OLE Health and represent the essential ingredients to a suc- CommuniCare Health Centers cessful merger decision and transition. This is In August 2022 OLE Health and CommuniCare Health true for all mergers, but is particularly important Centers announced a plan to merge organizations when aligning two similarly sized and positioned in the next year. The proposed merger is scheduled organizations. California Health Care Foundation www.chcf.org 2 to move forward in 2023 and brings together two progress and created a familiar process of shed- similarly sized and financially strong health center ding more ambitious initiatives to maintain basic organizations. operations. As one CEO said, "It isn't just econo- mies of scale, it is about economies of talent. . . . Health Center Profiles Do we have the necessary talent to address the more system-level issues?" The merger will align organizations with a similar number of patients - OLE Health serves just under $ Sense of stagnating impact. Second, both part- 29,000 patients and CommuniCare just over 20,000 ners described a sense of stagnating or declining patients - and similar payer (both 70%+ Medi-Cal) ability of their health centers to actualize trans- and patient ethnicity characteristics (both 60%+ formative change in their systems, leverage Latino/x with additional unique ethnic populations). Medi-Cal reform opportunities, or assert mean- While both health centers provide comprehensive ingful community leadership and influence at medical, dental, and integrated behavioral health, their size and scale. One partner shared how CommuniCare is well established as an essential spe- this "highlighted for us the limitations of our cialty mental health and Drug Medi-Cal provider in its systems and the fact that we are all in our little county. silos working on the same things. . . . How do we leverage talent so we can really up our game?" Coming to the Table Notably, both health centers also lack significant opportunities to grow through traditional patient Located in adjacent though non-overlapping geo- or geographic growth. Coming together repre- graphic areas of Northern California, OLE Health and sented an opportunity to strengthen financial CommuniCare have a long history of collaboration and stability, elevate organizational capabilities, and connection. Both organizations participate actively in expand local influence. a local clinic consortium, and the CEOs have served as resources and sounding boards for one another dur- $ A leadership transition opportunity. The issue ing similar tenures as executives. Shared one CEO, of who continues as the CEO of a merged health "We have been trusted colleagues for a few years center organization can derail a merger before it now and have often called to commiserate." In reflect- starts. Though both tenured CEOs, one is closer ing on this process, both reinforced the importance of to retirement and expressed a willingness right trust and honesty as the central ingredient to success. up front to step back in a merged organization. That paved the way to move forward quickly. Both CommuniCare and OLE Health have maintained a strong financial position through the COVID-19 Merger Agreements pandemic and largely recovered from declines in Once the two partners broached the subject and patient visits in 2020. So what brought them together moved past the continuing CEO question, the pro- to explore merger? The CEO partners highlighted cess moved quickly. They began by articulating a few three key factors that motivated a serious merger key agreements right at the start, including (1) this is exploration: a merger of equals, (2) all employees will be retained through the merger (though roles may change), and $ Executive team turnover. Both organizations (3) the OLE Health CEO will serve as the CEO for the recounted a frustrating cycle of executive senior merged organization. staff turnover in key positions such as chief finan- cial officer (CFO) or chief operating officer (COO) during the last several years, which disrupted A Partnership of Equals: Early Lessons from Mergers of Similarly Sized and Positioned Health Centers 3 After introducing the possibility to board leadership, staff developed an analysis of how a merger would be CHCF resource: A Hands-On Guide to Cultural better for patients, communities, employees, and the Integration in Community Health Partnerships business entity. An exploratory committee with board and Alliances provides community health and executive team members was formed, which organizations specific tools, exercises, and reviewed the analysis and recommended to the full actionable insights to define, discuss, and navigate culture in a new partnership. board to proceed with the merger. The merger ultimately included several agreements, $ Balancing a merged leadership team. The including the maintenance of OLE Health as the partners express particular sensitivity to the tran- surviving corporation due to its higher prospective sitions for a combined leadership team where payment system rates, the presence of a well-estab- all staff will continue but roles may change. To lished foundation, and the continuity of its CEO; build trust and address anxieties, the teams meet development of a new organizational name and brand together often, CEOs communicate about the with nods to the identity and history of both organiza- merger regularly, and both have prioritized indi- tions; appointment of the OLE Health CEO as CEO of vidual communication with team members. This a merged organization, with the CommuniCare CEO includes building comfort with the continuing continuing in a strategic advisor role; appointment of CEO and ensuring that both CEOs are reinforc- the CommuniCare board chair to serve as the merged ing the same messages. entity board chair to provide balance and equity to the CEO decision; agreement on a merged board of direc- $ CEO alignment and communication. The tors that retains membership from each organization partner CEOs speak frequently and priori- and includes proportional representation from each of tize alignment in their communication to staff. the counties to be served by the merged organization; "Everything starts with the two of us. We are the and retention of all employees under a merged and nucleus of this entire thing, and if we are not in revised organizational chart. complete alignment it can be problematic. . . . We have been very careful in coordinating. I won't reach out to her team without coordinating Early Lessons Learned with her." They have prioritized effective commu- Since securing board approval in August 2022, the nication and have coordinated closely on what two organizations have moved quickly to prepare for and when to communicate to staff. a mid-2023 merger. The CEO partners highlighted some early reflections and shared some key strategies $ Operational alignment. Looking forward, the to successfully move the merger forward. partners anticipate a two- to three-year process to align operations that broadly spans three $ Culture, culture, culture. Building an aligned phases: integration, standardization, and optimi- organizational culture and connection is a central zation. Initial alignment is expected to focus on focus as they move toward merger. The part- administrative and back-office operations such as ners have engaged an external coach, hired new payroll, human resources, and IT systems, among staff, and developed a wide range of activities to others, while a second step will address more address cultural integration. Among these activi- complex arenas, such as clinical care approaches. ties are monthly full-day team-building sessions That said, the partners acknowledge that this has and frequent staff communication. As one part- been an iterative process that will evolve. ner shared, "the culture piece is huge." California Health Care Foundation www.chcf.org 4 $ Board engagement. Following merger approval, County, with existing and planned VFC sites extend- the joint board exploratory committee has tran- ing from Venice to Inglewood and the SBFHC service sitioned into a merger steering committee to area running north-south from Inglewood to Torrance. address transition issues such as new bylaws, merged entity name, and communication and Coming to the Table guidance on rollout steps and timing. Rooted in a longtime relationship between the two CEOs and a history of collaboration between the Venice Family Clinic and organizations, merger discussions were seeded largely because of the planned retirement of the SBFHC South Bay Family Health Care CEO. In early 2020 the two organizations formalized In February 2021, Venice Family Clinic and South Bay their merger exploration by establishing a joint board Family Health Care announced plans to merge the of directors' exploratory committee that met regularly. two health centers under the Venice Family Clinic Formal exploration continued despite the emergence corporate umbrella to serve close to 40,000 patients of the COVID-19 pandemic and was approved by across the Westside and South Bay regions of Los both boards in February 2021. In addition to both Angeles extending from Venice Beach to Torrance. organizations maintaining positive financial health and The merger united two financially healthy and moder- expressing confidence in future financial projections, ately sized health center organizations into an aligned the partners ultimately pointed to the following rea- organization. sons as rationale for pursuing a merger: $ Mission alignment and organizational trust. Health Center Profiles Strong executive relationships and a history of Before the merger, Venice Family Clinic (VFC) served formal and informal collaboration between the 27,000 patients across 12 locations, while South Bay organizations reinforced both a sense of trust and Family Health Care (SBFHC) cared for 17,000 patients familiarity, as well as a sense of close alignment across five sites. While relatively similar in total patient in organizational missions, values, and culture count, important organizational distinctions existed. within the two organizations. Absolute patient count masked some important dif- ferences in organizational size and scope. $ Service area alignment and complimentary service strengths. Connecting two health cen- While both organizations delivered comprehen- ters with adjacent service areas extending from sive primary care services with some level of dental Malibu to Torrance, with overlap in Inglewood and integrated behavioral health, VFC additionally and Hawthorne, presented the opportunity maintained significant homeless and social service to both expand services to new locations and programs resulting in a notably larger organizational to deepen comprehensive services in existing budget, staff and infrastructure. In addition, VFC oper- locations in order to form a contiguous region ated a longstanding parallel private foundation that encompassing 50 zip codes and 660,000 resi- contributed to organizational sustainability. SBFHC, in dents with low incomes. This expansion allowed contrast, operated with a small and efficient adminis- for opportunities to extend VFC homeless and trative structure that included a small executive team integrated behavioral health services to SBFHC and a lean clinical leadership structure. regions and facilities, as well as to extend suc- cessful SBFHC services, such as group prenatal Importantly, the organizations served adjacent service services (Centering Pregnancy). areas running north-south along western Los Angeles A Partnership of Equals: Early Lessons from Mergers of Similarly Sized and Positioned Health Centers 5 $ Organizational stature, visibility, and capa- presented some early program and funding bilities. While merger would likely bolster opportunities for VFC in historic SBFHC service operational infrastructure, partners saw even areas, including new funding from local hospital more value in the opportunity to elevate their systems and foundations for homeless health collective organizational visibility, impact of advo- care services, as well as expanded mental health cacy on behalf of underserved communities, and and substance use services at SBFHC sites. fundraising and program capability within a sig- $ Technology integration. Elevating and align- nificantly larger geographic area. ing technical equipment, systems, and practices, including phone systems, has proved a heavy Merger Agreements lift for the newly merged organization. Looking Ultimately, the merger structure largely reflected an back, leadership recommended that others con- absorption of SBFHC into the VFC corporate and sidering a merger would benefit from assessing management structures. VFC remained as the sur- organizational systems, practices, and transition viving corporation, and the VFC CEO became the plans much earlier. CEO of the merged entity as the SBFHC CEO retired. $ Clinicoperations and culture integration. As a Similarly, the merged organization retained the VFC small and lean organization, SBFHC developed name and brand for the expanded organization. In efficient but decentralized clinic operations that terms of governance, VFC made several board seats often varied by clinic and were uniquely suited available for transition by SBFHC board members, to individual providers. The more standardized who were also offered the opportunity to join the par- approach to operations under VFC can provide allel foundation board. more infrastructure but also a sense of lost auton- omy among providers and site leaders. As the SBFHC site managers and supervisors have largely organization moves forward, attention is being retained their roles. At the same time, the VFC execu- paid to both operational alignment and cultural tive team structure remained the same following the integration of SBFHC staff and leaders into VFC. merger, primarily due to the small size of the SBFHC executive team. Interested SBFHC team members $ Clinicaland site leadership structure. While the continued in leadership roles within VFC. organizations maintained fairly similar clinic site administrative and operational leadership struc- Early Lessons Learned tures, they relied on vastly different site clinical leadership approaches. Now the organization The first year following the merger has presented is adapting the clinical leadership structure to early success and lessons learned. Those highlighted reflect a systemwide approach. by continuing leadership are noted below. Embedded in many of these comments is a broader reflection $ Physical site parity. Last, the organization has that the merger partners would have benefited from recognized some significant differences in the an earlier and deeper assessment of and plan to align age and appearance of VFC and SBFHC clinic operations, structure, facilities, and equipment: sites. Related both to its commitment to provid- ing a positive service experience and sensitivity $ Comprehensive service promise. One goal to the perception of a two-tiered system, the of the merger was to create health center sites organization is systematically assessing and that offer a comprehensive set of services across upgrading facilities. the geographic service area. The merger has California Health Care Foundation www.chcf.org 6 Conclusion California's Medi-Cal program and related expecta- tions for the safety-net health care delivery system are undergoing significant transformation. As a result, so too are demands on the Federally Qualified Health Centers (FQHCs) that provide much of the needed care in California's diverse communities. Medi-Cal reforms ranging from CalAIM to enhanced quality standards to new opportunities to utilize telehealth to the FQHC Alternative Payment Methodology ultimately seek to increase the capacity of Medi-Cal and its providers to deliver high-quality, culturally responsive care to those who need it. In the face of reform opportunities and increased expectations, some health centers are exploring merger as a vehicle to meet these demands and to transform organizational capability, influence, and impact. A merger of equals may pose distinctive con- siderations related to organizational culture, identity, or executive leadership continuity, but may also pres- ent unique promise to elevate the future impact and influence of FQHCs. A Partnership of Equals: Early Lessons from Mergers of Similarly Sized and Positioned Health Centers 7 About the Author This issue brief was prepared by Rafael A. Gomez, MPP, founder and owner of El Cambio Consulting. Over the last 10 years, Rafael has provided strategic guidance, analysis, and management consulting to a wide range of safety-net health care organizations in California, including community health centers, regional and statewide consortia, Medi-Cal managed care plans, county public health and delivery systems, social service providers, and health-related foundations. This includes strategic planning, market analysis and growth planning, service and program development, community planning processes, merger exploration, and other strategic guidance. Before consulting, he served as an FQHC executive director, health plan administrator, and foundation program officer, among other roles. About the Foundation The California Health Care Foundation (CHCF) is an independent, nonprofit philanthropy that works to improve the health care system so that all Californians have the care they need. We focus especially on mak- ing sure the system works for Californians with low incomes and for communities who have traditionally faced the greatest barriers to care. We partner with leaders across the health care safety net to ensure they have the data and resources to make care more just and to drive improvement in a complex system. CHCF informs policymakers and industry leaders, invests in ideas and innovations, and connects with changemakers to create a more responsive, patient- centered health care system. California Health Care Foundation www.chcf.org 8