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Effective Affiliations

Karen Minich-Pourshadi, for HealthLeaders Media, July 13, 2010
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It's been approximated by numerous healthcare associations that nearly nine out of 10 community hospitals participate in a system, network, or collaborative, and with the most recent recession leaving many hospitals with weakened balance sheets, that number isn't declining.

”Creative financing, joint ventures, and partner arrangements are becoming an increasingly prevalent practice in the healthcare industry—and a necessary practice for hospitals to strengthen their physician networks, a key element of healthcare reform and future changes,“ says Ron Seifert, senior consultant in the healthcare division of Hay Group, a global management consulting firm headquartered in Philadelphia.

Affiliations, which encompass mergers, acquisitions, and partnerships, can provide facilities with protection of market share and efficiencies of scale. However, to do so effectively, finance leaders need to create strong agreements.

Here are two keys to do so:

Watch antitrust regulations
Before you get started, analyze your competitive overlap with organizations with which you're considering affiliating. If pairing with them will result in a substantial increase in concentration for your market share, that may give law enforcement more reason to scrutinize the deal, notes Lisa Jose Fales, partner at the Washington, DC-based law firm Venable LLP, who specializes in anti-trust healthcare.

“Hospitals know who their competitors are; if this isn't a competitive advantage then it shouldn't raise any antitrust concerns,” she says. “But if there are any concerns, the hospital should consult an attorney.” Often, hospitals are doing a merger or other transaction to keep a financially ailing facility from closing, But, Fales notes, while the intentions may be well meaning, it won't save the facility from the legal rigors the government will subject them to.

Measure what matters
Once you've approached another facility regarding affiliating, be up front and clear about what your facility is looking for in the deal and look to measure the potential return on investment.

Seifert cites these metrics:

  • Finances (revenues, expenses, etc.)
  • Patient volume
  • Growing or protecting market share
  • Impact on recruiting physicians
  • Network referrals and other related diagnostic revenue capture
  • Ability to improve clinical outcomes/ quality (e.g., can bringing in these doctors raise the bar?)

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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