Hitting the Landing Zone
Finding the right fit
For many stand-alone or independent hospitals, a common way to adapt to population health and value-based care and to enjoy virtually instant economies of scale is to merge into a larger health system.
CHC's Williams says smaller, midsize, and community hospitals looking for the right partner or partners must first understand out-migration to learn where their patients are being referred by the physicians who practice at the hospital.
"If those referrals are to multiple sites for cancer, cardiac work, etc., yes, the relational iterations of specialization could create an organization with more than one partner," he says. "But it has to be based upon the medical staff relationships—historically and where they are going to be going in the future."
Smaller hospitals that want to merge with larger systems must remove emotion from the process, Williams says, and focus on optimizing the bottom line.
"Before anything happens, before you put yourself on the market for any type of relationship, you have to be assured that you are optimally performing," he says. "When you sell, it's going to be a multiple of your cash flow or EBIDTA. If you have multiple organizations competing for you, you want to be optimally performing so that when they look at you they want to include you in their population health provider base. All of that has got to be fact-based."
Once the financial assessment is completed, the smaller hospital has to determine what it needs from a merger. Williams riffs on a handful of questions that hospital leaders should ask themselves: "Do you need clinical collaboration, and if so in what areas? Do you need managed care clout and negotiation clout in working with the major payers based on what you think your reimbursement might be? Do you need access to medical staff, for either rotational or a full-time presence in your community? Do you need continuing education for your team? What do you need and who can provide that within the organizations that are looking to acquire or create some relationship with you?"
Increasingly in the not-for-profit sector, larger organizations are less inclined to acquire smaller hospitals, and instead are more interested in clinical collaborations and physician recruiting.