Finding the Right Partner

In a recent HealthLeaders Media Intelligence Report, healthcare leaders describe involvement in contractual relationships that stop short of a formal merger or acquisition, but M&A activity remains a dominant model. HealthLeaders Media Council members discuss their experiences with such arrangements.

This article first appeared in the September 2015 issue of HealthLeaders magazine.

Robert Shapiro
Executive Vice President
and Chief Financial Officer
North Shore-LIJ Health System
Great Neck, New York

The nature of the arrangements that our organization chooses is determined based on the entity that will be joining our system. For instance, if we have acquired another hospital, then it would fall under the corporate parent. Occasionally, there are hospitals that we don't bring in to the system right away, for a number of different reasons. At times, we enter in to an affiliation agreement, which is an agreement that we'll work together on certain activities and maybe grow a relationship over time.

From a strategic perspective, what's important is the location of a facility and whether it fits a business need in an area where we may not have a presence, its financial position and health, and, of course, clinical infrastructure. What kinds of services do they offer, and what is the quality like?

Each acquisition gets easier than the last. After you've done this enough times—the due diligence, the partnering, bringing two organizations together—you develop a sense of what we need to look at. There are fewer surprises down the road. Sometimes you find unexpected things, like understaffing or construction work that needs to be completed, but it gets easier as you learn which questions need to be asked ahead of time. There are fewer surprises.

David Zechman
President and CEO
McLaren Northern Michigan Hospital
Petoskey, Michigan

The biggest difference between being a small healthcare system trying to partner with other small, independent healthcare systems and merging with a big healthcare system is one thing: access to capital. There's capital involved in both directions. And therein lies the reason why you look to partner or merge with a larger system; a larger system clearly does have the capital to make things happen.

When I was the CEO of a small medical center approximately four years ago, we tried to set up a network of five independent rural hospitals so we could collaborate, share best practices, do some group purchasing, and maybe share some human resources, all without merging bottom lines. But while it sounds like a great idea, it's difficult to do. Our greatest challenge was finding enough capital to pull our alliance together. I believe that it could work, but smaller rural facilities generally don't have excess capital to invest in such ventures. Last I heard, the organizations involved are still trying to make that work.

Clearly, there are financial advantages to partnering with a large system. Group purchasing of supplies is a significant financial advantage. McLaren is a AA-rated system, and that allows us financial benefits in terms of borrowing money—not to mention that there's a lot of expertise at the corporate level that we wouldn't have access to if we were a standalone hospital.

Jerry Birk
Vice President of Business Planning and Strategic Development
Rideout Health
Yuba City, California

Rideout Health's primary joint venture has been UC Davis, a local academic medical center. We have a jointly owned cancer center that has been remarkably successful for the community in terms of access to tertiary-level care. Having cobranding with UC Davis is significant because members of our community recognize that they have access to a greater level of care than a typical independent, rural community hospital would be able to supply.

One of the unique qualities of this relationship is our Virtual Tumor Board. One of our own local oncologists is able to partner with the oncologists at UC Davis and have discussions virtually about care plans, status, and diagnoses.

I think this partnership enhances the quality and level of care received, and I think that when the patients see both Rideout Health and UC Davis on the side of the building, it's a brand enhancement. It's also a strong cultural fit. The two entities have embraced one another as partners, and it's been a very collaborative and successful joint venture.

I believe that there are more opportunities for regional collaboration than there have ever been in the past. The underlying premise is that we all have issues and problems, but often they are shared problems. We like to think that under shared problems there are also shared solutions that we can face together, as partners.

Larry Sobal
Vice President of Care Transformation
Ministry Health
Appleton, Wisconsin

On recent activity: Ministry has been very busy with mergers over the past few years. Three years ago, we merged with another health system here in Wisconsin, Affinity Health. A year later, we decided to join Ascension Health's nationwide network. I'd say we're still in a transitional period, and still figuring out the finer points of merging the three systems.

On changes in control: For some people who have been with Ministry for a long time, it's a very dramatic change since we're switching from fairly local control to accommodating influence from our national parent organization. Additionally, Ascension Health is currently transitioning from being a holding company to an operating company.

On finding the right partner: Cultural fit has always been the most important element of selecting partners for us. We're a Catholic entity that is descended from freestanding Catholic hospitals that did a tremendous job of instilling the Catholic mission and vision in their organizations. But, as the nuns leading these smaller health systems and freestanding hospitals age, at some point, they need to ask, “How do we ensure that our mission will continue for another 100 years?” Catholic healthcare leaders recognize that we're going to have to rely more on laypeople to drive Catholic healthcare into the future. That leaves us with the question, “Which potential partners do we share the best sense of purpose with?”