American Association of Healthcare Executives

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Approved by the Board of Governors Dec. 9, 2024.

Statement of the Issue

Changes in organizational ownership or control can take several forms including, but not limited to, consolidations, mergers, acquisitions, affiliations, joint ventures, 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.

Policy Position

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:

• Engage the board in such consideration from the outset.
• Set up a multifunctional task force with appropriate authority to conduct this process.
• Identify your organization’s values and goals and how the potential transaction supports them.
• Determine whether and how the potential transaction would support the organization’s mission and commitment to the community.
• Clearly articulate, in the context of the environment, the reasons for considering a potential change in ownership—the anticipated benefits, risks of not undertaking a change and the desired outcomes.
• Establish specific criteria, including values-based 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 appropriate studies 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, patients 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. All outside experts should work solely for one organization.
• 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 values system and that of a potential partner.
• Identify financial incentives, if any, 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 and regulatory 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 regulatory 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.
• During the regulatory process, establish a multifunctional team to develop a time phased detailed implementation plan considering operations, human resources, marketing, communication, medical staff and clinical integration and cultural issues. Communicate regularly regarding the implementation planning efforts. Ensure that the plan provides for the fair treatment of all employees impacted by the change.
• At the conclusion of the regulatory process, initiate implementation while communicating widely on a weekly basis..

Ensure that proposed compensation and benefit arrangements with decision makers are reviewed for legal compliance purposes and impact on community perceptions and goodwill.

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.

Policy created: November 1997
Policy updated: December 2024