Executive Roundtable: A High-Level Look at Hospital Affiliations

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A High-Level Look at Hospital Affiliations By Heather Punke Hospital mergers, acquisitions and affiliations are popping up across the country as the nation's healthcare lead- ers react to their industry's changing landscape. Here, three CEOs and one chief strategy officer from hospitals and health systems of different sizes weigh in on their views of hospital affiliations, including what hospitals look for in a partner as well as words of advice for other leaders. Question: Do you see hospital affili- ations becoming more popu- lar? If so, what do you think is driving that popularity? Michelle Conger, senior vice pres- ident and CSO of OSF Healthcare System (Peoria, Ill.): Absolutely [they are] becoming more popular. ere are many reasons people seek an affiliation, but a large part of it is the transformation going on in health- care in terms of payment models. It's really difficult to build all of the things necessary to support pay for value independently. I think hospitals are looking for partners to really be able to share in those types of capabilities. ere are a million kinds of affilia- tions, all perhaps driven by something different. Smaller hospitals are looking for partners, not a full acquisition necessarily, but a partner who can help them access those capabilities. Wayne Griffith, CEO of Princeton (W.Va.) Community Hospital: I be- lieve affiliations in some form will con- tinue to be popular. e ever-changing healthcare landscape will most likely draw healthcare leaders to look seri- ously at affiliations. e basic survival instinct will cause some organizations to seek affiliation opportunities. e oversupply of healthcare resources in some areas, coupled with changing de- livery models, may necessitate affilia- tion exploration. Still others may focus on affiliations as a means of quality improvement. I believe that a lot of the past activity has been tied to mergers and con- solidations, including the activity in our state. Clinical affiliations are an alternative to mergers, providing a low level of integration. Also, clinical affiliations provide a vehicle for the en- hancement and integration of health- care services. We are all trying to meet the needs of our community. Affilia- tion arrangements can be successful when both parties have the same goal of preserving community-based healthcare. Dean Gruner, MD, CEO of e- daCare (Appleton, Wis.): Popularity ebbs and flows, but is more on the uptick right now. I think in times of uncertainty, people are driven to look at bigger decisions [like affiliations]. In the past, the motivation has been to leverage with payers. If you think about that, to leverage payers to pay them more, that increases costs to the community. If you believe the value equation is quality divided by cost, then that decreases value to the com- munity. It does make it easier to run our organizations if we're paid more, and that's sort of the challenge for all of us: It's a good thing for us to have more revenue, but that is somebody else's cost. Doug McMillan, CEO of West Park Hospital (Cody, Wyo.): I'm definitely seeing an increase in rural hospitals looking to affiliate with larger facili- ties. It's driven by number of issues; the biggest being the lack of resources available in rural communities. It may be driven by not having access to a larger group purchasing organization that can lower their purchasing cost, or not having access to specialty physi- cians. For some looking to affiliate, the big issue is access to capital. Because of what's happening in the industry, that's a major concern right now. From our experience here, we have not chosen to affiliate; we have not seen a need. We have good working relation- ship with other larger hospitals, de- pending on the service line. We can reach out to them without any formal affiliation. We've had a management contract with Quorum Health Re- sources for 27 years. It's proven to be extremely beneficial and thus is the A High-Level Look at Hospital Affiliations 2 Dr. Gruner: They look at lots of things. Some of the left-brained issues in- clude financial strength or the ability to improve capital for infrastructure. Looking at the partner's ability to manage their cost structure or reduce sup- ply expenses. They probably should be looking for data or the quality systems a partner can bring to the table. In our case, people have been looking for some of our expertise with lean. My sense is you can look at the wish list of the things you might want to get, but you should probably start with the people side of things. If the two organizations have different approaches to people or the man- agement-level people really don't get along, it's likely that conversation [will] fall apart. It's the unstated part of affiliations, if two leadership teams don't hit it off, it's not likely to work out when you try to put it into a legal document. Leaders have to find a way to work together for these things to work. Mr. McMillan: They should be looking for leadership alignment. In affilia- tions, the mission and vision of the larger hospital should be similar to the smaller facility's values. That's what's most important in my mind. There are too many tertiary facilities' values are not aligned with rural hospitals' values: Their goal is to pull patients out of smaller communities, which is not what smaller communities are looking for in an affiliation. Keeping patients close to home is what's important. Mr. Stapleton: First and foremost is to find a partner you can build trust with and one that can evolve into a reciprocating relationship. [UR Medi- cine] recognizes benefits of partnering with us: It allows them to be a larger regional player and to deliver the highest quality care in a cost-effective way. Thompson Health benefits from cost savings on medical supplies and ex- panding specialty services in our community. We are learning from each other through sharing best practices and interacting on the board level. I find it difficult to believe leaders would talk to someone about affiliations and mergers without an existing relationship. We had great clinical relationships established that we could build trust upon, which is one of the reasons we've been so successful. It's all about trust. 4:KDWZRUGVRIDGYLFHZRXOG\RXVKDUHZLWKKRVSLWDOOHDGHUV FRQVLGHULQJDQDI¿OLDWLRQ" Ms. Conger: Never ignore culture. Regardless of the type of affiliation you're considering, a traditional merger and acquisition or independent affiliation, success is largely defined by shared culture and vision for where healthcare is going in the future. Understand where healthcare is leading and you have cultural compatibility, [which] makes a huge difference. More particularly, if you're looking at a traditional merger, you really can't ignore the integration process. Recognize it's going to take effort and has to be mutually successful. We created an integration office that has helped us stay focused on getting the value out of what they talked about at the beginning. Mr. Griffith: First and foremost, you must trust and respect partner. The organizations must share a common vision and what it may become in the long term. You must have with your own stakeholders — the board, management, community — to educate them on the purpose of the affiliation their input. Also, in planning for the future, we constantly hear from we need to be part of a larger system to survive. I would one take a deep breath, take your time and carefully consider filiation options. As Princeton Community Hospital and Medical Center decided: It may make sense to start at the integration continuum with a clinical affiliation and respected partner. Dr. Gruner: I think you can save yourself a lot of frustration culture compatibility part of [the affiliation] early to really all get along. The other things are a little easier to measure. Mr. McMillan: Plan carefully and wisely. It gets back to your organization's mission and values align with those affiliating with. Mr. Stapleton: The words of advice I give to my peers who do it on their own is to reevaluate your thought process. It's environment, we hear about it with every email we get or you think you are the outlier, it would be worthwhile to sibilities of affiliation. Also, it's important to get medical staff buy-in. Our physicians in discussions about these concepts. We have strong medical on our board, so they were heard throughout the process. take it to them at the end. We were not looking to replace the that are already here; we were looking to supplement them was greatly valued during the process. Q ³,QDI¿OLDWLRQVWKHPLVVLRQDQGYLVLRQ ²'RXJ0F0LOODQ&(2RI:HVW3DUN+RVSLWDO ,17(*5$7('+HDOWKFDUH6WUDWHJLHVLVDOHDGLQJKXPDQFDSLWDOFRQVXOWLQJ¿UPIRFXVHGH[FOXVLYHO\RQKHDOWKFDUH2XUWHDPRIH[SHULHQFHG Dr. Gruner: They clude financial Looking at the ply expenses. They a partner can bring some of our expertise My sense is you to get, but you the two organizations agement-level [will] fall apart. teams don't hit a legal document. things to work. Mr. McMillan: tions, the mission smaller facility's too many tertiary Their goal is to smaller communities to home is what's Mr. Stapleton: with and one that cine] recognizes regional player Thompson Health panding specialty other through sharing it difficult to believe mergers without established that been so successful. 4:KDWZRUGVRIDGYLFHZRXOG\RXVKDUHZLWKKRVSLWDOOHDGHUV FRQVLGHULQJDQDI¿OLDWLRQ" Ms. Conger: Never considering, a success is largely is going in the cultural compatibility, More particularly, can't ignore the and has to be has helped us about at the beginning. ,17(*5$7('+HDOWKFDUH6WUDWHJLHVLVDOHDGLQJKXPDQFDSLWDOFRQVXOWLQJ¿UPIRFXVHGH[FOXVLYHO\RQKHDOWKFDUH2XUWHDPRIH[SHULHQFHG "Affiliation arrangements can be successful when both parties have the same goal of preserving community-based healthcare." -Wayne Griffith, CEO of Princeton Community Hospital

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