Is a partnership right for your hospital?

Partnership is a growing trend in the healthcare industry. In 2019, hospital merger and acquisition activity increased by 19 percent, according to a PricewaterhouseCoopers report. Various economic pressures push hospital leaders to consider forming relationships with other hospitals and organizations. There are other partnership options besides mergers and acquisitions. In some cases, it’s best to identify a partner that can provide the resources necessary for your hospital’s long-term sustainability. Jim Kendrick, CEO and President of Community Hospital Corporation, shares insights on hospital partnership trends.

JK: The financial strain to remain open has increased significantly for community hospitals. While there’s generally room to improve operational and financial performance, some hospitals lack the resources to optimize complex processes like revenue cycle, supply chain and productivity without outside help. Likewise, some hospitals lack the resources to keep up with the latest healthcare technologies, systems and regulations.

Value-based reimbursement has shifted financial risk away from payers and toward hospitals, which are now responsible for improving patient care across the population. Some hospitals partner with other organizations on population health initiatives in order to meet that responsibility.

Additionally, the demographics in many rural communities are composed of a stable or shrinking population of residents who are older, sicker and more disadvantaged than the U.S. population as a whole. This patient base costs more to treat and relies on Medicare and Medicaid for health coverage. Reductions in reimbursement rates by these government payers have hit community hospitals hard.

These drivers and many other factors increase a hospital’s need for investment capital or other resources. Partnering with a larger healthcare organization can provide access to those resources.

JK: There are several options in addition to a merger or an acquisition. An affiliation agreement, for example, transfers neither risk nor governance. The smaller organization maintains control, and should it fail, the larger organization does not take a hit. The benefit to smaller hospitals of such an agreement is that it allows them to leverage the larger organization’s purchasing power and use its facilities and physicians.

Another option is a management relationship. A local hospital board may want to maintain governance and control over the hospital while abdicating day-to-day management responsibility to an outside third party. A managed hospital benefits from the other party’s operational expertise. Management relationships can be short term or interim in the case of a financially distressed hospital that is repositioning, or they can be long-term relationships.

Sometimes finding a buyer as opposed to a partner is the best course of action. When missions are compatible, acquisition can help a hospital continue to serve its community.

JK: Hospitals need to take stock before seeking out partners to identify their own strengths and where resources and support may be needed. A debt-saddled hospital might need a partner to take on its debt, for example, or an aging hospital may need a major capital infusion for facility upgrades.

Part of this process is boosting your hospital’s own appeal. Look where improvements could be made to areas such as staffing, supply chain and revenue cycle so you can negotiate the relationship to your best advantage.

An operational assessment can help identify your hospital’s strengths and areas where a partner could help. This analysis may even point to some potential partnership candidates.

JK: Use a request for proposal (RFP) process to seek partners that provide the needed resources and also have a shared mission and compatible culture. Lack of cultural compatibility is a common cause of partnership terminations.

Improving quality of care and the bottom line as a combined organization is the main goal, but also evaluate other potential benefits of a relationship, which might include improved geographic coverage, expanded services and enhanced clinical talent.
 

To learn more, please visit communityhospitalcorp.com/services/strategic-vision/partnering-organizational-alternatives/.