Hitting the Landing Zone
The JVs give Stanford Children's access to nearby markets without having to buy them. "We create a partnership, and now we are in a community and we can serve that community," Dawes says. "We attract less-acute patients to their local host hospital, and the high-end cases come to us. It gives us greater market share in these communities. It remains local, but in some cases the business comes to us. And it's been very effective and been the impetus for us to substantially increase our market share in the Bay Area."
While the rewards are enticing, Dawes says the process is difficult. "It takes a lot of energy and time," he says. "One could argue that it is easier to acquire. But from our viewpoint, our ability to JV with multiple parties allows us to access a much bigger market."
Evolving payer models
As the provider side consolidates, so too has the payer side, which has led to a chicken-or-egg argument about who's responsible for all this merger, acquisition, and alignment activity.
"It takes a lot of energy and time. One could argue that it is easier to acquire. But from our viewpoint, our ability to JV with multiple parties allows us to access a much bigger market."
Michael T. Rowan, president of health system delivery and chief operating officer at Englewood, Colorado-based Catholic Health Initiatives, says it's been interesting to watch how payers evolve.
"If you look at some of the payers, there are three things that historically they do," Rowan says. "One, they put together a network of providers, so you start to get larger health systems and they have a natural network of providers. Two, the payers historically have managed benefits. Larger and more sophisticated organizations may be keen to do some of that for themselves. Three, they put together various products to sell out there, and more and more if you have an integrated delivery network you can begin to put together a product which includes long-term care, ambulatory care, diagnostic services, and inpatient care and home care and primary care and the like.
"So, you can begin to start to see some of the friction because some of the things that historically the payers have done, larger and more sophisticated integrated networks are capable of doing that now," Rowan says.
Dawes at Stanford Children's says payers' enthusiasm for provider consolidation swings both ways. "Sometimes payers encourage it because they are focused on building networks," he says. "Other times payers are less enthusiastic because we are a high-end place and it gives us access to more markets, which means it gives us more leverage as well. Overall, the payers certainly haven't responded negatively."