Merging, De-merging, and Emerging at the Deaconess Billings Clinic

A story from
Deaconess Billings Clinic, Billings, Montana
Told by: Ken Baskin, Jeff Goldstein, and Curt Lindberg

Illustration of:

• phase transition
• emergence
• complexity lens
• generative relationships
• paradox
• reflection
• good enough vision
• multiple actions
• wicked questions
• tune to the edge

By the spring of 1995, almost everyone worried that the merger two years earlier, forming the Deaconess Billings Clinic, was a mistake. Administrators from the community-owned not-for-profit hospital, Deaconess Medical Center, were aggravated with "those physicians" who demanded to be treated as equal partners, yet weren't prepared to understand the business of operating this complex healthcare organization. And physicians from the for-profit physician-owned Billings Clinic across the street were distraught at being treated as if the hospital had "purchased" their services with the clinic. Ninth Avenue, which separated the two Billings, Montana health care facilities, appeared to be getting wider every day.

This mutual antagonism surprised everyone, because, for two years before the merger, representatives from both sides discussed "every conceivable" financial legal, and operational issue, and had co-developed a mission and values statement to guide the organization into the future. Representatives from both sides further agreed, not only that the merger would profit both institutions, but also that it would enable them to serve their community better. But like many other organizations going through a merger, what no one at the clinic or hospital recognized was that, in their discussions, they had overlooked a critical issue – the cultural differences between the clinic and hospital that now threatened to rip apart the newly merged organization.

Fast forward three years, and you could easily conclude this Deaconess Billings Clinic (DBC) must exist in a parallel universe. People across DBC were now confident the merger would work. In fact, a newly erected "sky bridge" across Ninth Avenue symbolized the emerging sense of partnership. How did they bridge their conflict?

"Looking back, we see that our management style encouraged people on both sides to find a solution that worked for all of them. Rather than impose a single culture on everyone, as a more traditional management style would have, we allowed a new culture to emerge from the self-organizing way organizations actually work," explained Nick Wolter, M.D., DBC's CEO. "We didn't realize it at the time, but we were treating the organization as what complexity theory calls a complex adaptive system (CAS). In this way, we moved beyond the old 'us vs. them' mind-set."

Wolter is describing here the principles and practices arising from research into complex systems, otherwise known as "complexity theory." Complexity theory is the multi-disciplinary study of systems as diverse as stock markets and the human body, hospitals and forest ecosystems. Often referred to as complex adaptive systems, they are many-leveled networks of elements, whose interactions create capabilities that the elements, alone, do not have. Our bodies, for instance, are composed of networks on many level, including atoms, molecules, cells, and organs.

Complexity theory offers a powerful model for effective healthcare mergers, which create genuine healthcare systems in a manner that differs substantially from customary approaches. Exploring in more depth how the merger evolved at DBC can provide insight into how other healthcare organizations can apply a CAS model of mergers. (For other healthcare applications of complexity theory, see Zimmerman, Lindberg, and Plsek,1999; and Lindberg, Herzog, Merry, and Goldstein, 1999.)

Health Care in Billings

Deaconess Medical Center and the Billings Clinic had worked closely together for many years, even though this cooperation was mostly informal. Yet, by the late 1980s, clinic physicians and hospital administrators began to see themselves as potential competitors. For example, even though Deaconess already had such services, Billings Clinic installed a CT Scan, and was considering a MRI and outpatient surgery, in part to generate revenues to meet its developing needs. The threat of competition drove representatives from both sides of Ninth Avenue to begin informal discussions in 1990, where they quickly recognized a common commitment to high-quality health care services. Ultimately, they agreed the clinic would become a not-for-profit medical foundation and operate as a sister to the hospital, both governed by a not-for-profit holding company with a Board composed 80% of community members and 20% of Billings Clinic physicians. After the 1993 merger, the two organizations operated side-by-side yet separately, with a three-person "office of the president"-- Hospital CEO, Clinic Administrator, and Physician Chairman of the Billings Clinic --coordinating its activity, and a Physician Services Council to oversee issues of the Billings Clinic only.

The cultural differences between the old organizations soon became obvious. The hospital was accustomed to operating in a corporate manner. The CEO and a few senior administrators made most major decisions; lines of communication were tight; and corporate principles of business management were standard. On the other hand, the clinic emphasized physician autonomy; consequently, decisions were made through consensus. However, the physicians didn't pay as much attention to standard business practices.

As a result of these cultural differences, DBC’s policy of "joint governance" meant different things to each. Hospital administrators interpreted the merger as making the clinic a division of a now larger hospital health system where decision-making would be pushed upward in the hierarchy. On the other hand, clinic physicians expected the new organization to use a Mayo Clinic-type model, where they would have a strong role in decision-making. But they didn't recognize the additional responsibilities that their new community mission would create for leaders in such a not-for-profit organization

The conflict to see which culture would control the newly merged entity reached a crisis when the new DBC Board decided to replace the three-person office of the president with a single CEO, and its CEO search committee was unable to unanimously agree on a final selection, leaving DBC with a non-physician interim CEO. As a result, by spring of 1995, some physicians began discussing the cost of "de-merging," and some hospital representatives and Board members began looking for alternatives for dealing with what they saw as an "unruly" and "unsophisticated" group of physicians.

This clash over how the cultures taught people in them to interpret events was fanned by equally different ideas of who should have power in healthcare organizations. The administrators relied on the "legitimate" source of power derived from their position in the management hierarchy. The physicians perceived their power as an outgrowth of personal "expertise" in medical care. What healthcare mergers have often lacked is a powerful means for integrating these two contradictory understandings of power.

Traditional Approaches to Mergers

The early history of the DBC merger reflects three traditional approaches:

1. Partition - Managers assume that everything can continue as it had, with merged units operating side-by-side. This approach overlooks the tensions putting the units together may cause, and serious conflict results.
2. Domination - One organization and its culture takes over another. This approach results in debilitating resentment in the "defeated."
3. Synthesis - Through careful planning, design, and execution, managers in the merging companies try to synthesize the best elements of each into a higher, superordinate harmony. In the real world, it's impossible to predict what will happen when the two cultures come together. Also, the imposed elements of the newly created culture create many of the feelings of the Domination approach.
   
   

Paradox Addressed

At this crisis point, Nick Wolter, the previous head of the physician group practice at the clinic, went to the Board with a group of physician leaders and requested a facilitator to mediate the growing antagonism. The Board’s approval led to a two-weekend session, in the spring of 1995, for physician leaders, Board members, and key senior administrators. "It was very uncomfortable, at first," Wolter recalled. "In retrospect, our discomfort was positive, a sign that we were, at last, looking honestly at the paradox-the tension between contrasting expectations-caused by operating, side-by-side, from the assumptions of two different cultures." The facilitator encouraged participants to express themselves to each other according to the formula "this is how I felt when you said that." No one held back, and, at times, it did look like the merger might be over. But during that session, participants began to see that those two years of clashes had been about cultural differences, not personalities. People on both sides recognized that a common commitment to the highest quality patient care was the common vision that had sustained all of them during these difficult years.

As a result of this meeting, DBC's leadership realized it would have to balance the needs of physicians, administrators, and Board members. Leadership had earlier expressed this need in the Operating Council – an internal board of five elected clinic physicians and five DBC administrators that made decisions on important issues for the whole organization. Now they reinforced this balance by moving to a dual-CEO structure, which would pair an Administrative Executive Officer (AEO), responsible for the business end of the organization, with a Medical Executive Officer (MEO), responsible for medical operations. The two would share accountability for aggressively supporting development of the new DBC organization and culture.

The Board further acknowledged its commitment to physician/administrator partnership when it elected, as new Chair, Ronald H. Smith, M.D., a senior Billings Clinic physician. This was the first time Board members had trusted physicians with such a level of business responsibility and not-for-profit accountability to the community.

From a complexity theory perspective, the facilitated meeting and consequent changes illustrate how a complex system evolves precisely because of internal tensions, not by dampening them. The key in keeping the tensions from exploding is to establish a safe boundary, like the mediated session, around the differences so managers can channel them constructively. At DBC, the organization began to experiment with different organizational structures that bound the cultural strains and drew on them as a source of energy in achieving what the merger was supposed to be about.

Experiments in Leadership and Organizational Structure

Although the facilitated meeting got the merger back on track, rough spots lay ahead. By spring 1996, hospital volumes were flattening, and DBC ran operating losses for several months. As part of the effort to reduce costs and overhead, about 190 full-time-equivalents were let go. This reduction in force (RIF) was extremely painful. Nonetheless, it accelerated acceptance of DBC's emerging new culture by highlighting how much old-culture managerial secretiveness and less-than-excellent business practices made the pain of the RIF even greater.

Moreover, the RIF renewed interest in clarifying the DBC "medical foundation model." "The idea began when Billings Clinic physicians discussed the Mayo Clinic model, before the merger," Wolter explained. "But none of us understood what it meant until the pain of the RIF drove home what a physician/administrator partnership would have to mean."

DBC’s Foundation Model

DBC's Model – a physician-led, professionally managed community health care system – included five major elements:

1. A multi-specialty physician group practice, in which a "community of physicians" works with other health care professionals and staff to provide higher quality, better coordinated, and more efficient care.
2. The partnering of physicians and excellent business managers, whose synergies drive both quality and financial success.
3. Not-for-profit, community-owned and -governed status.
4. A mission focused on patient care, education, and research, and dedicated to improving the health of the patient as well as the community.
5. An obsessive dedication to quality and service.
   
   

This foundation model cemented the merger as physicians and administrators at DBC translated it into the reality of their new organization. Perhaps the best example is the Chiefs of Service, developed, in the words of Executive Director of Quality Improvement, Ann B. Oglesby, M.D., "To take the idea of physician led, professionally managed health care out into the trenches." The Chiefs structure pairs a physician Chief of Staff with an Administrative Director for each of seven services - primary care, specialty medicine, surgery, critical care, psychiatry, diagnostic services, and cardiac services. Physician chiefs are appointed by the Operating Council, which initially chose strong informal leaders, to create a greater sense of representation among physicians across the clinic and hospital. It’s also important to note that much of this Chiefs’ structure emerged from the pre-existing working relationships between administrators and physicians, even when the two institutions were separate.

"We saw the Chiefs as a place where practicing physicians would have prime accountability for clinical issues, service line planning, physician personnel issues, etc., but we did not plan their duties in significant detail," Wolter noted. "It wasn't until later, when I started reading about complexity theory and the idea of emergence that the power of 'good enough vision' and creating a context where emergence can occur struck me as very important concepts for organizational change and adaptability."

An Emergent Approach to Merger

In complexity theory, emergence is the process by which CASs adapt to changes in their environments by self-organizing into radically new processes and structures. For example, water is a liquid even though the hydrogen and oxygen of which it is made are gases. Similarly, the way political systems are growing out of the collapse of the old Soviet Union is unpredictable. In emergence, the elements of a system are radically reorganized in ways not predictable from a knowledge of its components alone.

The DBC merger illustrates an Emergent approach to mergers. With it, mangers cannot expect to successfully integrate two or more organizational cultures by either synthesis or forcing any type of premature consensus. Rather, they should approach a merger as an ongoing, self-organizing process likely to be characterized by the pain, difficulties, fits and starts, feelings of being lost, all experienced at DBC. They should actually welcome these reactions as signs that the process of emergence is taking its course.

One source of these painful experiences is that people in the merged organization must be connected strongly enough to experience the consequences of their cultural differences, as Glenda Eoyang's Difference Matrix suggests:

With his approach, managers must keep nudging the system into Quadrant 1, the only place in the matrix where deep-seated change can take place. Only by fostering abundant interaction, communication, relationship building, and information flow, can intense differences lead to creativity as they did at DBC. With this Emergent approach, managers can expect their newly merged organizations to move through a series of stages:

1. Managers put a new boundary around the existing units. Even when operations are restructured to reflect a single entity, people continue to see and think about their markets, customers, and operations as their old cultures taught them. These cultural differences will lead to conflict and enough pain that they may become willing to examine their differences honestly. Research shows that the most creative and original outcomes of emergent processes are those arising out of what appear to be incompatible elements.
2. In acknowledging that their old way is not the only one, people in the merged organization open it to a period of experimentation in operations, governance, and the way they behave toward each other and their clients. If managers provide sufficient information, direction, understanding, support, and patience, people throughout the organization will self-organize into a new culture and new structures.
3. Once it becomes clear that the organization is self-organizing, managers need means to ensure an ongoing commitment to new ways. By experimenting with new organizational structures, the system is led to find new ways to hold the organization together, as DBC did in the emergence of the Chiefs of Service.
   
   

In the summer of 1997, after two years with a dual CEO, the DBC Board decided to appoint a single executive leader. The dual structure had symbolized the physician/administrator partnership at a time when people needed to see that the new culture was working. Now, the Board wanted a single CEO to clarify accountability and came to Wolter to ask if he would take on the responsibility. The choice of Wolter, a physician with clinical and administrative experience, illustrated to everyone how thoroughly the organization had turned around since 1995.

While DBC has made enormous strides since the troubled days of 1994-5, it still faces a series of challenges. It continues to face the problems of finances and community relations that arose while it was so strongly focused on internal events. The new culture continues to emerge, demanding a great deal of energy. And the dedication to quality, so central to DBC’s foundation model, will have to be demonstrated repeatedly, especially because earlier cost-savings initiatives, such as the RIF, created some perceptions about a "bottom line" mentality.

In spite of these challenges, most of DBC's staff has developed confidence that the new culture is "taking", that there is no turning back. In fact, Terry A. Housinger, a general surgeon and DBC Chief of Staff, pointed to the nursing staff as a key indicator of how well the merger is working. "Nursing was probably hit about as hard as anyone during the RIF," he said. "Yet I see more trust between our nurses and doctors than I can ever remember. If the people who have been hurt the worst can embrace the new culture, I'm certain that it can work."

Bibliography

Much of the information found in this article is treated in more depth in the following works:

Baskin, Ken. Corporate DNA: Learning from Life. Butterworth-Heinemann, 1998.

Eoyang, Glenda. Coping with Chaos: Seven Simple Tools. Lagumo Corporation, 1997.

Goldstein, Jeffrey. The Unshackled Organization: Facing the Challenge of Unpredictability through Spontaneous Reorganization. Productivity Press, 1994.

Lindberg, C., Herzog, A., Merry, M., and Goldstein, J. "Life at the Edge of Chaos: Health Care Applications of Complexity Science," Physician Executive, January-February, 1998. 24 (1): 6-20.

Zimmerman, Brenda, Lindberg, Curt, and Plsek, Paul. Edgeware: Insights From Complexity Science for Health Care Leaders. VHA, Inc, 1999. To order call 800-931-0053.

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