When describing Nemours Children’s Health System’s growth strategy for this year, CEO Dr. Larry Moss steers clear of the term “mergers and acquisitions.” But the provider doesn’t intend to go it alone, either.
Instead, his team’s energy is dedicated to partnerships that will help the Jacksonville, Fla.-based system address the social determinants of health that affect kids the most. Nemours provides medical care, but Moss said actually improving health extends well beyond that, and will require the help of adult health systems. “We’re always on the lookout for those win-win opportunities,” he said.
Nemours’ strategy fits with a broader trend among health systems of seeking out joint ventures and partnerships that carry many of the same benefits as M&A but require less capital and carry less risk. That trend was apparent in the results of Modern Healthcare’s 2020 CEO Power Panel survey, in which 69.2% of the 26 respondents said joint partnerships were a component of their growth plans for this year, up from just half of respondents in the 2019 survey. It’s also the second year that CEOs said M&A activity is less of a strategy at their systems.
“Partnerships will be increasingly important,” said Marna Borgstrom, CEO of Yale New Haven Health. “Money doesn’t exchange hands for acquisitions as much as you’re going to try to align care along a continuum that supports better outcomes and patient care.”
In some cases, a health system wants to buy a hospital from another system, but the price is too high, said Doug Swill, a healthcare partner with law firm Faegre Drinker Biddle & Reath. “The health system says, ‘We want you, but we’re not going to put in a premium right now,’ ” he said. “So they do a JV and the health system buys a percentage of that hospital.”
In that example, the health system—often a not-for-profit—will buy less than 50% of the hospital so that the seller retains ownership control. In some cases, the buyer provides a capital commitment to the target system in exchange for board seats. Such deals would need to undergo antitrust analyses, especially if the providers are in the same market, Swill said.
Those partnerships also make sense when the seller has attributes, like a strong ambulatory outreach strategy or electronic health record system, that would benefit the buyer. It’s a common scenario when a large health system has a pricey EHR system, and a smaller hospital can’t afford the system, but needs to improve its medical records system. In that case, the smaller hospital will contract with the larger one, which will then serve as an EHR host, Swill said.
“We’re definitely seeing an uptick in that,” Swill said.
For Nemours, one example is its partnership with Lakeland Regional Medical Center in Orlando. Nemours’ specialists provide inpatient cardiac care at Lakeland Regional, and the two organizations jointly staff an outpatient health campus that offers cardiology, endocrinology, gastroenterology and other specialties. The partnership includes an agreement by Lakeland to send its sickest patients to Nemours.
“That’s a wonderful partnership,” Moss said. “It’s in the best interest of kids and our medical center.”
Yale New Haven Health’s Borgstrom said she doesn’t buy into the idea that her health system should, for example, strive to be a $7 billion system in two years. Yale New Haven drew $4.6 billion in revenue in 2018. “That doesn’t make any sense to me,” she said. “I think you have to be focused on what your vision is for the system for growth and how you get there.”
Vertical joint ventures are also increasing in popularity, especially in the social determinants arena, such as care access or housing issues, Swill said. It’s also becoming common for health systems to partner with payers to create narrow networks, he said.
In addition to partnering with other hospitals and health systems, Morristown, N.J.-based Atlantic Health System has partnerships emerging with insurers like its local Blues plan, Horizon Blue Cross and Blue Shield of New Jersey, said CEO Brian Gragnolati. Atlantic has also partnered with UnitedHealth Group’s Optum to open urgent-care centers in its coverage area. “I think those types of activities are going to continue,” he said.