Smaller Hospitals Eye Partnerships over Mergers and Acquisitions

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The healthcare industry has commonly been a merger and acquisition market, but with the oft-mentioned paradigm shift, what does this mean for the market currently and what does it mean for smaller systems and standalone hospitals?

Philip Betbeze writes about this over at HealthLeaders Media where he observes that “any link to previous eras of consolidation is difficult because the creativity surrounding partnerships among hospitals and health systems is expanding rapidly.” Instead, “a long spectrum of affiliations” now exists, instead of the traditional mergers and acquisitions, according to Joseph R. Lupica, chairman of Newpoint Healthcare Advisors.

“A lot of that is motivated by local hospitals getting smart and realizing they don’t have to give up control entirely—they can do the least necessary to accomplish their goals and keep the most possible control,” Lupica explained.

So, what strategic and operational tie-up strategies provide “the best partnership option to ensure” your “organization’s long-term viability?”

Betbeze provides the following, commonsense list:

  1. 1. Know your advantages.

Lupica says the advantages for local, smaller hospitals are actually great. For example, your cost of care is usually lower. Because community hospitals tend to have personal, social relationships with patients, patient engagement tends to be better. Also, quality scores can be as good, if not better than the scores at larger systems interested in partnering with or purchasing the smaller hospital.

Lack of capital tends to be the biggest disadvantage for these organizations, however, and it is also the biggest advantage of partnering with a larger system, especially if you’re trying to achieve profitability for such factors as Medicare reimbursements.

  1. 2. Know your disadvantages, too.

New York is a good example of a state rife with healthcare disadvantages. For one, it’s “the 49th most profitable state in the country for hospitals.” Barely half of these hospitals are bringing in enough revenue to break even. “Declining and aging” are the two words used to describe New York’s population. Not surprisingly given all of these factors, physician recruitment is extraordinarily difficult.

Lake Erie Regional Health System of New York decided to confront these challenges by “trying a new model with UPMC Hamot in Erie” that wouldn’t involve merging, but would assure that “the two systems will work collaboratively to determine the service needs of the area.”

By looking honestly at its state of affairs, LERHSNY realized it was left with few options that didn’t involve affiliation of some type, “because bigger institutions, at half a billion dollars in annual revenue, are forming relationships with insurers, investing in EMRs, and increasing transparency to compete in the intermediate- and long-term.”

Because of this partnership, LERHSNY will now be afforded leverage of scale and leverage in negotiations, especially with third-party payments.

  1. 3. Take charge of your destiny.

LERHSNY is an example of an organization that was able to retain some of its autonomy on a local level, especially since it was in a location ripe with possibilities.

“Newpoint’s Lupica says small hospitals and health systems need to take charge of their own destiny in the same way that people are in charge of their own careers,” Betbeze writes.

Lupica said, “They need to define themselves for the next decade. What do you want to be outside the deals? Put a face on it.”

Above all, as LERHSNY’s CEO advises, “don’t move in desperation.” This is too important of a decision to act rashly and hastily.

For more information on the LERHSNY deal, we encourage you to read Betbeze’s whole piece.

In the meantime, we’re also interested in hearing what executives think of the concepts Lupica puts forth. If you’re from a smaller organization, what are your chief concerns about partnership with a larger hospital or system? If you’re from a larger hospital or system, what are the main attractions of forming relationships with smaller hospitals?

-by Pete Fernbaugh

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