Issue link: https://beckershealthcare.uberflip.com/i/197073
46 Transaction & Valuation Issues Keeping Healthcare Local: Why Some Providers Choose Non-Ownership Collaborations Over Mergers By Helen Adamopoulos I n July, Trinity Health, a nonprofit health system based in Minot, N.D., made a decision more and more healthcare organizations have been making lately. The health system joined forces with a larger entity — Rochester, Minn.-based Mayo Clinic. "When we learned of the Mayo Clinic Care Network and how it was bringing together hospitals across the region and beyond to collaborate to improve patient care, we thought that was fitting right in with our strategic plan," says Randy Schwan, Trinity's vice president of marketing and community education. However, unlike many other recent partnerships formed between health systems and hospitals, Trinity's joining the Mayo network doesn't involve the larger system taking ownership. The pressures to cut costs, improve quality and coordinate care have resulted in a wave of merger and acquisition activity, with many hospitals and health systems pooling resources to stay afloat during a tumultuous and demanding time in the healthcare industry. However, some organizations like Trinity have decided to find a way to collaborate with other providers without actually getting absorbed into a larger system. Mr. Schwan says Trinity wants to remain independent to serve the unique needs of its community in a way only local ownership can, while still benefiting from Mayo's expertise. "We're a strong, not-for-profit, communitybased provider," Mr. Schwan says. "We can use and leverage their resources for the improve- ment of care for our providers and patients without sacrificing autonomy and local control." Staying separate in a sea of consolidation: Why some providers prefer to remain independent As the pressure to hold down healthcare costs becomes more intense and the Patient Protection and Affordable Care Act continues to revamp the healthcare landscape, hospital merger and acquisition activity has surged in recent years, with more than 300 estimated hospital mergers since 2007, according to the FTC. In the second quarter of 2013 alone, 15 hospital mergers and acquisitions were announced, according to a report from Irving Levin Associates. The summer of 2013 in particular got people talking about mergers, with Dallas-based Tenet Healthcare Corp. agreeing to buy Nashville, Tenn.-based Vanguard Health Systems in a $4.3 billion transaction, and Franklin, Tenn.-based Community Health Systems revealing its planned acquisition of Naples, Fla.-based Health Management Associates in a deal valued at $7.6 billion. Still, not all hospitals and health systems are merger-minded. Mr. Schwan says that local ownership and decision-making has served Trinity well, and they prefer to keep their leadership where it is, although he doesn't rule out exploring other options in a changing healthcare landscape. "We in rural North Dakota have certain challenges that we face that are unique in access to our region and in serving the needs of our residents," he says. "In many cases, the returns one might gain in rural healthcare are not attractive for investor-owned organizations. Still, we have the obligation and are committed to providing services needed in the region, even low-profit services." For that reason, the non-ownership collaboration with Mayo Clinic appealed to Trinity. The 21-member network — which publicly accepted its first member roughly two years ago — extends the Clinic's knowledge and expertise across the nation while still keeping healthy, independent healthcare organizations healthy, regional and independent, says David Hayes, MD, the network's medical director. "We would prefer not to do large-scale acquisitions," Dr. Hayes says. "We think there are real advantages for care staying local. For us it's about practice extension. It's one thing just to merge and acquire, but if you're not truly integrating and you're not trying to extend the practice, it's not necessarily the best for patient care." That philosophy seems to apply to a considerable number of hospitals and health systems as well, given the traction the program has gained so far, Dr. Hayes says. Mayo has mainly just responded to queries from organizations that want to join, he says. Those potential members go through a comprehensive due diligence process to make sure their culture lines up with Mayo's, among other factors. "We want to make sure, at the end of the day, that we're affiliating with quality organizations," he says.