Evidence based mergers?

The NHS seems to be in the grips of “merger mania.” Why is this happening and why now? More importantly, on what basis do we judge whether the merger of two or more NHS organisations is successful and is there an evidence base on how to manage them?

Seventeen mergers of NHS trusts took place in England in 1991-7.¹ The cycle of trust establishment and merger activity follows the NHS financial year. Twenty three mergers came into effect from 1 April 1998, and ministers are considering further proposals for April 1999. In Scotland’s current “reconfiguration” the number of trusts is planned to reduce from 47 to 26, and in Wales 26 trusts will be reconfigured into 16 by April 1999. The government sees these mergers as “evidence of a new cooperative culture developing inside the NHS.” Laudably the key test that will be applied in judging the merits of merger proposals will be whether they improve patient care. All will also have to lead to proved reductions in bureaucracy.²

Mergers occur in mature industries because of trends such as globalisation, increased competitiveness, and government deregulation policies: thus many examples exist in the airline, telecommunications, pharmaceutical, and utility industries. The last government’s introduction of the internal market into the NHS and associated deregulation, albeit mild, stimulated merger activity in the early 1990s. Certain trust mergers in London were perceived as “shotgun marriages” forced by the Tomlinson report—a government intervention in a market place which was beginning to take hold and to wound major teaching hospitals.

Other than edict, what are the reasons for merger? Clearly there are economic reasons. Economies of scale (operating efficiently at higher rather than lower levels of production) and economies of scope (centralising multiple services to ensure critical linkages) are both often cited as rationales. Merger is also a legitimate device to deal with excess capacity in the local health economy, as evidenced by many proposed mergers resulting from reconfigurations of acute services within a whole health authority area. The “concentration” of services on one site is also driven by the reform of medical staff training, reduced hours of working for junior doctors, the trend towards subspecialisation, and in some cases by national service guidance such as the Calman-Hine recommendations on cancer services; we can expect more of the last sort through the national service frameworks proposed in the English white paper on the NHS.³

During early 1995 the pursuit of power in the marketplace could have been cited as a powerful reason for merger; now it is truer to say that the power which accrues from being a substantial player on the local health scene has become the goal—in order to attract and keep staff, raise capital, and work flexibly across multiple services. Finally, the downward pressure on management costs is a further factor. Mergers offer organisations potentially large savings on senior management positions and board structures.

What is the evidence about the outcome of mergers in the health sector? As with the commercial world, very few data exist. A recent economic review states, “The evidence of the impact of mergers in the health sector is inconclusive and suggests that the expected benefits from mergers often do not materialise.”¹ The Department of Health’s guidance on the operation of the internal market in 1994 summarised the literature on mergers relating to economies of scale and scope and to quality. It concluded that the evidence is at best mixed, that studies are subject to substantial methodological problems, and that the evidence from this literature cannot be used alone to justify decisions on reorganising services.⁴ The NHS and other health organisations internationally clearly need methodologies to support benefit analysis of merging healthcare organisations.

Because of the lack of sound evidence, we have a government encouraging mergers as an act of faith—albeit with the intention of improving patient care. So how do we ensure that mergers are successful? Evidence from the literature of organisational behaviour does exist, and, ironically, it shows that many mergers fail. Studies in the United States show that as many as 75% of mergers of hospitals are unsuccessful when issues surrounding corporate culture are ignored. “Employee problems” are said to be the cause of as many as half of all merger failures.⁵ Reflect back on the recent proposed (and then aborted) merger of SmithKline Beecham and GlaxoWellcome and we find very senior employees having problems with the deal. In reorganisations of acute health services in the United Kingdom and abroad it has been shown repeatedly that carefully thought out plans for merging services are extraordinarily difficult to accomplish (London Implementation Group archives 1994-5).⁶

Successful organisational mergers require focus on two critical elements: the clarity of the goals of the merger and how the process itself is managed and communicated.⁷ The general secretary of the Royal College of Nursing recently commented, “Communicating with clinical staff and patients—sharing the vision of where you’re going—is central to managing mergers successfully.”⁸ She is right. Managing the process of bringing together two or more trusts successfully requires sophisticated project management supported by carefully thought out staff handling policies.

Mergers will be the right thing for a community only when there is a convincing case to be made locally for the merger and when potential service benefits outweigh the considerable human and organisational costs of making the change happen. Ways must be found to assemble evidence on the benefits of merged NHS organisations and on how to manage the process of merging. Such evidence can then be used by the leaders of this change, both the national policy makers and those on local boards charged with bringing organisations together in the new post-market NHS.