Strategic partnership

The Cleveland Clinic's unlikely partnership with Community Health Systems is supposed to marry the best of both worlds: an outcomes-driven academic medical center known for handling complex medical cases and the operational discipline of a large and successful investor-owned hospital chain.

CHS, the nation's second-largest for-profit hospital system by revenue, will join the Clinic's quality alliance, which was established in 2010. A few hospitals that are part of the Franklin, Tenn.-based system will also work with the Clinic's Heart and Vascular Institute to strengthen their cardiovascular programs.

The Clinic, meanwhile, wants new expertise managing its operations, a struggle for many academic medical centers.

“We know that we have to drive value and the two components of value are obviously quality and cost,” said Dr. Delos “Toby” Cosgrove, president and CEO of the Cleveland Clinic. “There's tremendous pressure on improving quality. We think this is a great starting place.”

The alliance aims to address the very different needs of both organizations at a time when financial pressures are forcing hospitals to make changes in the ways they care for patients, operate their facilities and plan for the future.

“While there is great uncertainty, everyone in the industry agrees on one thing: Revenue per unit is going down, due to an array of reimbursement pressures,” David Cyganowski, managing director of Kaufman Hall, said in an e-mail. “The most successful health systems will be those who offer high quality healthcare at affordable costs.”

Cyganowski said that he would expect to see other for-profit hospital companies form similar alliances that trade cost-reduction strategies for clinical best practices, with some occurring at the regional level.

“Who are the highest-cost institutions in the country?” Cyganowski said. “Academic medical centers.”

The changing healthcare environment has led to rapid consolidation among hospitals. However, quality has not been the focus of those agreements, said Wayne Smith, CHS' chairman, president and CEO. “This is really about quality and how we can use the Cleveland Clinic resources to provide and enhance and (add) to the quality that we have in the markets where we operate,” he said.

Under Smith's tenure as CEO, CHS has grown from about 36 hospitals with $750 million in revenue in 1997 to 135 affiliated hospitals spanning 29 states with about $13 billion in annual net revenue. Many of its hospitals operate in small or rural communities, and they handle about 2% of the nation's annual hospitalizations.

The Clinic operates 11 hospitals in Florida and Ohio and employs nearly 3,000 salaried physicians. Its CEO is a heart surgeon.

In a note to investors, Darren Lehrich, managing director of U.S. healthcare service providers for Deutsche Bank, referred to the alliance as a “net positive” for both organizations. “Not only does the Cleveland Clinic relationship have strategic merits, but it also is a great stamp of approval given Cleveland Clinic's reputation and the amount of due diligence that it put in to determine if an association with (CHS) was in its best interests,” he wrote in the March 11 note.

The Clinic has provided quality-improvement consulting services for several years, a program that serves as a revenue stream for the health system.

It has branded cardiovascular affiliations with 14 hospitals. In those cases, the Clinic conducts detailed consultative assessments and ensures that the facility meets specific clinical quality thresholds before taking on a hospital as a Cleveland Clinic-branded affiliate.

The Rochester, Minn.-based Mayo Clinic has been working aggressively to expand a network of clinically affiliated hospitals. Mayo President and CEO Dr. John Noseworthy recently said the system plans to add another 10 organizations this year to the 14 already on board.

“As healthcare is changing, a healthcare system like ours has to be able to understand the nuances of practicing medicine in a much farther geographical area than we have functioned in the past, particularly on a day-to-day basis,” said Dr. Bruce Lytle, chairman of the Cleveland Clinic's Heart and Vascular Institute. “We have always functioned nationally and internationally in cardiovascular disease. In the future, it's going to be very important for us to continue to be able to do that.”

With CHS, the Clinic will evaluate the cardiovascular programs at two CHS hospitals, as well as the cardiovascular data and information systems at another five hospitals, said Dr. Joseph Cacchione, chairman of operations and strategy for cardiovascular medicine at the Clinic.

The goal is provide the information CHS needs to develop quality-improvement initiatives at a systemwide level for its own facilities. “We're not necessarily doing performance improvement with them,” Cacchione said.

With the quality alliance, in particular, CHS will work with the Clinic to establish clinical integration programs for the 17,000 physicians on the medical staffs of its 135 affiliated hospitals. Approximately 2,500 of those doctors are employed. The data that is collected, analyzed and compared can be used to support predictive modeling and population health management initiatives.

“If we can do this and do it in an effective way, it should be a helpful model in terms of delivery systems across the country,” Smith said.

The alliance may also serve as a marketing tool for CHS-affiliated hospitals and boost referrals for the Clinic. And, as health systems continue to evolve, the Clinic's role as a provider of specialized care may become a greater part of what it does.

Lytle said it's likely there will be a limit in the scope of complex care that a 300- or 400-bed hospital in a medium-sized city can provide, in part because of the costs associated with infrastructure and physician talent.

“Part of our future is going to be able to offer efficient medical care in conjunction with those organizations so that their patients stay their patients and at that time when they need very, somewhat unusual, and specialized care that they come to the Cleveland Clinic,” he said. “You're not going to be able to duplicate academic medical centers in every city in the country.”