Skip to main content

Small Doesn't Mean Doomed

 |  By Philip Betbeze  
   December 06, 2013

Innovation, partnerships, and execution—not scale—will determine success, says the CEO of Genesis Health System (IA). To the many overtures for consolidation, he is confident that the right answer remains "no."

Doug Cropper sees his health system as crucial to the delivery of care in his market. That sentiment is no doubt true now, but will it continue to be in the future? In a heavily consolidating industry, independent systems may seem an anachronism, leading many observers to disagree with Cropper's view. Such organizations don't have the scale or the war chests to weather a healthcare nuclear winter as the business model transforms from one based on volume to one based on value. Or so goes the argument.

The name of Genesis Health System, which Cropper leads as president and CEO, implies a new beginning, but the fact remains that it's a relatively small system in a land of giants. The system has 660 licensed beds and reported net patient service revenue of $513 million in the year ending June 30, 2013. Yet the Davenport, Iowa–based system's top leader says all it needs to do to navigate healthcare reform is stay its current course.

His view may run counter to those who would have independents rush into the arms of larger competitors, but Cropper, his board, and his leadership team believe they've plotted a course under which Genesis will thrive independently. The health system consistently, and frequently, updates its strategic plan, with a little help from much larger partners who have no interest in owning Genesis's assets.

"That's one of the advantages of small systems. We can move very fast," he says.

But the independence question isn't one that frequently comes up. "We don't talk a lot about independence. The board set an agenda six years ago, where they said they wanted to be independent and regionally controlled," and Cropper says they haven't revisited that determination since.

"We evaluate our competitiveness, but we don't overly focus on independence," he says.

For now, the six-hospital system (including three critical–access hospitals) is concentrating much of its energy on challenges that Cropper believes are essential to its long-term survival and by proxy, its independence. Leaders are taking as a given that they can achieve success amid those challenges on their own. When I asked him to talk about his most vexing strategic issue, he instead offered three:

Physician alignment

Genesis has a total medical staff of about 800 physicians, about 200 of whom are employed. Like many other systems, integration has been much easier with the employed group, but Cropper says the organization is making huge strides with the independents as well.

"With the employed group we have come a long way," he says. "We have engaged a lot of practicing physicians in leadership roles. It's been a lot of effort but it's paying off. With the independent staff, it depends on the group. They're all very different; in some cases, they're our competition in some specialties and the level of cooperation varies group to group."

Cropper says growth of the employed physician base is inevitable, but that he's not as interested in employment as he is in clinical and financial integration.

"Ultimately, our physicians will have to make a choice whether to take risk with us or not," he says.

Readiness to manage population health

Rather than view his system as a potential acquisition target, Cropper sees Genesis as more of the acquirer type.

As part of its strategy to "cheat the scale issue," as Cropper describes it, Genesis joined a partnership in June 2012 with two larger systems in the state under the University of Iowa Health Alliance banner. Its stated goals are to advance quality of healthcare services, improve the health status of patients and communities, and achieve efficiencies that will help member organizations reduce the rising cost of care for their patients.

But what it really does is help smaller systems achieve data and operating efficiencies that they couldn't achieve on their own, but could by pooling resources. In addition to Genesis, the three other partners are Mercy Health Network, Mercy-Cedar Rapids, and University of Iowa Health Care. Together, they make up about 60% of the healthcare market in Iowa. Perhaps more important, the Alliance competes with health insurers by offering two insurance products through the state exchange.

The partnership even reaches beyond local boundaries, as Mercy Health Network's parent organizations are Catholic Health Initiatives and Trinity Health, two of the largest nonprofit health systems in the nation. "So they have a lot of resources, particularly from R&D, that we can tap into," says Cropper.

Though limited in scope, the partnership has four goals:

  • ACO shared infrastructure
  • Statewide contracting
  • Clinical integration across the alliance
  • Getting closer to the premium dollar

Cropper says all four organizations are committed to remaining independent, but says the University of Iowa Health Alliance is capable of both competing and collaborating with payers.

Dealing with the pace of change

"I think we do pretty well managing change because we're small, but it's tough," Cropper says. "The number of balls in the air is more than I've ever seen."

He doesn't see Genesis or even the larger partnership competing based on its ability to effectively negotiate rates with insurers in the future. Instead, "success will all be around our ability to achieve value at a competitive cost," he says. "Some of that will be on private or public exchanges. Even though some create these big behemoth systems, healthcare is still regionally delivered, and that's where you have to perform from the quality or cost standpoint that will make or break the system in the future. It's not about your market leverage."

Cropper's belief that value, not market leverage, will be king flies against a growing chorus of those who fear that regional consolidation of healthcare services will lead to reduced or nonexistent competition, and raise prices even further into the stratosphere. Consolidation could be the chief driver of the emergence of regional monopolies, which of course would bend the cost curve the wrong direction.

But Cropper doesn't buy it. "We're quite strong on the balance sheet side, so it would have to be a pretty tough environment for us to consider merging," he says. "If we're in that soup, the majority of the country would be there with us."

He goes so far as to say that the only reason to pursue a merger would revolve around whether Genesis is able to deliver quality or value on its own. He is confident in the structures put in place.

"It would have to be finances or quality that would drive us to" a merger, he says. "I get approached all the time, and I have to say no. The alliance would be where we would look first if we ran into that situation."

Philip Betbeze is the senior leadership editor at HealthLeaders.

Tagged Under:


Get the latest on healthcare leadership in your inbox.