Bigger does not always mean better
n the pharmaceutical industry, Hoechst and Rhône-Poulenc Rorer have amalgamated to form Aventis, Ciba and Sandoz have merged to create Novartis.
According to a company statement*, Novartis comes from the Latin term "novae artes", which means "new arts" or "new skills." "Rhône-Poulenc Rorer and Hoechst have adopted the name Aventis for the creation of a new world leader in the Life Sciences"; a statement of this newly merged company reads*: "The name evokes the idea of movement, innovation, science, the future and constant progress."
"Perhaps the most frightening aspect of the spate of mergers in healthcare is that it would cause little or no surprise if we were told that Enuresis is to become the new global player."
Perhaps the most frightening aspect of the spate of mergers in healthcare is that it would cause little or no surprise if we were told that “Enuresis” is to become the new global player in radiology and the most recently created pharmaceutical megalo-company. Enuresis is a corporation that will have a major impact upon the radiological community, according to a company spokesman. The new company combines one of the world’s biggest soft drink producers, a company whose products are commonly described as “defense material”, and a pharmaceutical firm. The company motto would be "Let's get pissed" **.
Its Latin name would give it an air of seriousness. All radiological departments dealing with Enuresis would have to install a soft drink dispenser if they wanted to purchase their contrast agents at a special reduced price. This would be good news, because it would mean decreased expenses in radiology.
Industry has the most resources, the best thinkers, and the greatest insight into the needs of the healthcare system – if industry is to be believed. Its recipe is company mergers and an intensifying drive towards globalization.
What does all this corporate maneuvering mean to radiology?
James F. Smith, professor of finance at the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill in the United States, explains the background of mergers:*
"Last year's deals set a volume record, enriched Wall Street dealmakers ... The gloom and doom crowd has been joined by the editors of the famous magazine, The Economist ...
"My wonderful students, the Kenan-Flagler Business School MBA class of 1999 ... handled these ridiculously pessimistic articles with aplomb.
"Thanks to other classes in the first year MBA curriculum, they knew that most mergers today are being driven by technological change and the need to be large enough to compete successfully on a global stage. Most mergers are not driven by the egos of corporate managers, as frequently happened in the past, but rather by market opportunities and the ability to raise productivity dramatically."
"Hear, hear," * as they yell in the British parliament.
Now, let's apply these teachings to mergers in medicine and, particularly, radiology. Let the companies speak for themselves. The spokesman of one company involved summarized one the recent deals as follows:*
"Today's healthcare market is desperately seeking efficiency, and that is what our merger is all about. By adding the other company's nuclear imaging and magnetic resonance capabilities, this acquisition will enable our company to better serve the world's medical caregivers [I like this word; one positively smells the lie. The author] and their patients... Our new bigger company will bring new product and technology synergies to healthcare providers – providing significant productivity advantages for health care providers leading to enhanced patient care."
This is exactly what we need in our radiological departments and practices. The public relations statement of the company involved continues as follows:*
"This transaction is a testament to the talent and dedication of our employees. In the future, the customers of the company we bought will benefit from the breadth and depth of our imaging systems, support and service offerings. Furthermore, the sale enhances the shareholder’s value and provides additional resources for the pursuit of future business opportunities."
Let's explain some terms:
In this context, "synergy" means that there are two companies producing radiological equipment or accessories. Usually, in the synergistic world, the better one will disappear. "Consolidation" implies the contrary of competition.
For some radiologists this stands for waking up one morning and finding out that they are the unlucky victims of the merger craze – some are even unhappier because they had just acquired machines from a company which has been taken over by another. Parts of the contracts they just signed after long deliberation will not be fulfilled. This is an excellent solution for less unemployment because the lawyers of the radiologists will talk to the lawyers of the global player, which keeps the lawyers off the street. There are few other beneficiaries.
What else can happen? A Central-European company was interested in ultrasound and bought a specialist ultrasound manufacturer. The new owners discontinued some of the products, and some medical doctors were stuck with ultrasound equipment that lacked software because the purchaser had fired the software engineers. This is indeeed "a testament to the talent and dedication of our employees."
What else is positive for radiologists and medical doctors? Let's listen to the spokesman of two other merging companies*:
"The combination of our preeminent long-term care providers will create an important new force in the industry, with increased growth potential from an already rapidly growing base. The combination of our two companies will enhance our ability to offer superior and innovative patient services at a time when the long-term care industry is both growing and consolidating."
Permanent economic growth is as likely as the perpetuum mobile.
Therefore, the spokesman knows what he means when he says: "Both growing and consolidating." Do not believe that this is a satire – this is a public statement of the president of a major healthcare company.
Many of the companies eating or being eaten do not lack solidity, but sometimes the management does. I would rather cooperate with companies whose aim it is to provide good service for me, my department, and my patients. I have nothing against them making money – on the contrary, without profit there is no survival. However, I do not need permanent growth which can only mean replacing equipment and accessories ever faster.
In addition, big company means big administration, and big administration means little responsibility. With a small or medium-sized company, customers usually find the person responsible quite easily without looking for days. Global companies have structures which hamper decision-making for their products and customer services.
Smaller companies products are often more innovative and of better quality than those of the giants. They have a more flexible management that is interested in the companies' and customers' benefit, not only in their own. In general, the bigger the company, the less competition exists, and with size comes bad products and poor customer relations.
The employees never know if they will be fired the next day. This creates a state of anxiety in the sales and service representatives, which you can feel when they visit you. You know that you cannot rely on people like this – although you might feel pity for them. You want a long-term relationship with a supplier which means having the same (and hopefully happy) reference person over a long period of time.
Additionally, the company image suffers and the identity of both employees ("proud to be an IBM employee") and customers ("Siemens equals German quality") may disappear. What is a Crimler (Daimler-Chrysler) or a Volks-Royce (Volkswagen-BMW-Rolls Royce) compared with a Mercedes-Benz or a Rolls Royce? Anyhow, 60% of all mergers do not work out at the end.
Therefore one would rather like to see a semi-big multinational company with national, partly independent production sites, manufacturing radiological products in and for a small region of the world – with a company culture fitting the healthcare system of this region. Healthcare is fundamentally different from most goods and services and is consequently best delivered in a setting where community needs are primary concerns.
The press release cited earlier ends with the following statement*:
"This release contains certain forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the Company's control which may cause actual results, performance or achievements of the Company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those detailed in the Company's periodic filings with the Securities and Exchange Commission."
Always read the small-print, as my grandmother used to tell me.
Footnote: * real statement – ** invented statement.