Leveraging Resources Through Clinical Affiliations

"What has emerged, more and more, are atypical relationships that aren't focused on ownership; they're focused on leveraging the strength of our partners," says one senior executive.

This article appears in the October 2015 issue of HealthLeaders magazine.

For health systems across the country, clinical affiliations have emerged as an attractive alternative to mergers and acquisitions, which come with ownership stakes attached.

Most health system clinical affiliations feature relationships with local medical service providers that help the hospital group cost-effectively fill gaps in the organization's care continuum, such as partnerships with independent urgent care centers. Junior partners gain several financially related benefits from health system clinical affiliations, including service volume growth and the ability to maintain most, if not all, of their independence.

"There is a tremendous amount of potential from partnerships," says Thomas Blincoe, executive director of outreach for The Ohio State University Wexner Medical Center and executive director of Ohio State Health Network, a regional affiliation of 15 community hospitals centered around Ohio State University Wexner Medical Center in Columbus. "What has emerged, more and more, are atypical relationships that aren't focused on ownership; they're focused on leveraging the strength of our partners."

For the fiscal year ending June 30, 2015, OSU Wexner Medical Center posted total gross revenues of $7.3 billion.

Healthcare industry survey data reflect the growing interest in clinical affiliations. In a HealthLeaders Media Intelligence Report published in February, The M&A and Partnership Mega-Trend: Deals for Growth and Survival, 38% of survey respondents said their organization's most recent activity was a contractual relationship but not an M&A deal. In comparison, 34% of respondents said their organization's most recent activity was an acquisition, and 10% said it was a merger.

Partners tackle new challenges

As health systems seek valuable clinical partners beyond their hospital walls, many organizations are affiliating with familiar allies: other health systems and hospitals.

Last summer, OSU Wexner Medical Center signed an affiliation agreement with Ohio Valley Health Services & Education Corporation, which operates community hospitals in Wheeling, West Virginia, and Martins Ferry, Ohio. The relationship, which began about three years ago when Ohio Valley joined the Ohio State Health Network, has initially focused on improving oncology services at Ohio Valley's community hospitals.

The West Virginia not-for-profit corporation's duo of community hospitals has 340 licensed beds combined, and Ohio Valley employs 1,600 people.

"Cancer was the service line that made the most sense right out of the chute," Blincoe says. "One of the things we ask our potential affiliation partners is what their priorities are. Ohio Valley wanted a cancer affiliation."

From a strategic perspective, a key goal of the Ohio State-Ohio Valley clinical affiliation is to allow Ohio Valley's oncology patients to stay close to home for most cancer treatments, while also creating easier access for Ohio Valley patients to receive top-notch tertiary care at The Ohio State University Comprehensive Cancer Center in Columbus. OSUCCC includes the James Cancer Hospital and Solove Research Institute (also known as the James), an acute care facility with 306 inpatient beds and 17 emergency department beds.

"Our goal is to keep the patient at Ohio Valley if and until he or she would need specialized treatment at the James," says Jeff Walker, senior executive director of business administration at the James. "The support structure for patients—their family and friends—is in the community. … It's just not realistic for patients to travel two hours to Columbus every time they need a cancer treatment."

The master affiliation agreement that the partners signed in June 2014 features an up-to-eight-member advisory council with equal representation from Ohio State and Ohio Valley, according to Lisa Simon, a 25-year healthcare industry veteran who serves as CFO for Ohio Valley. She says the advisory council reports directly to each partner's board of directors, noting there is no governance stake linked to the clinical affiliation. "They don't control us. They don't have board seats on our board of directors."

Ohio State and Ohio Valley formalized their oncology clinical affiliation last fall.

As the term clinical affiliation implies, Simon says the Ohio State-Ohio Valley partnership is primarily focused on improving clinical services, with financial impacts considered a secondary concern. "We looked at things clinically, then we looked at things financially. … We looked at it from the perspective of what we could do to improve clinical care in the community."

With most clinical affiliations designed primarily to achieve clinical goals, including initiatives in untested territory such as population health, finance executives face a dual challenge. First, they have to track murky monetary impacts, and then they have to variously mitigate and maximize the impacts
to achieve the best possible financial outcomes for their organizations.

Melissa Childress, associate executive director of business development at the James, says many clinical affiliations and the models that inspired them are in their infancy, making financial impacts hard to determine.

"One of the challenges at this stage in the country's healthcare reform efforts is the focus. It's usually either higher quality or lower cost, but there has not been enough work on the downstream financial effects of a value-based healthcare delivery system," Childress says. "We haven't had enough time to develop the metrics. We're in the middle of an evolution of healthcare."

Simon says she is monitoring a dashboard of metrics to gauge the financial impact of the Ohio State-Ohio Valley clinical affiliation, including doctor professional fees, chemotherapy infusion costs, and physician office visit volume. But the CFO says she is still gathering data to fill in all of the pieces in the clinical affiliation's financial impact puzzle.

Ohio Valley hiring an Ohio State radiation oncologist—a major clinical boost from the clinical affiliation—has tremendous clinical upside for the organization's community hospitals but far foggier financial effects, Simon says.

"They identified an individual who wanted to be here, and we vetted her. She is employed by Ohio State, but we pick up the cost. … Prior to last year, we did not employ a radiation oncologist. It's not like this relationship has been in place for a few years," she says. "When we hired the radiation oncologist, our labor costs went up; so in addition to new revenue from this affiliation, we have new costs to consider. We had to hire new pharmacists, and hiring pharmacists is not cheap."

Simon says Ohio Valley set a modest financial goal for the early stage of the organization's clinical affiliation with Ohio State. "We knew we were going to experience start-up costs," she says, noting first-year expenditures such as new lab equipment. "My expectation for year one of the affiliation was that our cancer program would financially break even with the preaffiliation budget. I haven't seen anything yet to alter that expectation."

Targeting service lines

In California, a cancer care affiliation was launched in August 2011 between Community Hospital of the Monterey Peninsula and the University of California San Francisco's Helen Diller Family Comprehensive Cancer Center. UCSF is part of UC Health, which for the fiscal year ending June 30, 2014, posted total operating revenue of nearly $8.6 billion.

For Community Hospital, a 258-bed nonprofit facility based in Monterey, California, the partnership has strengthened its oncology services on several fronts, says Phillip Williams, director of the organization's cancer center. He says the clinical benefits of the affiliation for Community Health include local access to UC Health clinical trials, educational opportunities for medical staff and the public, participation in "tumor boards" made up of experts from a range of disciplines who review challenging cases, and expedited referrals to specialists.

From Community Hospital's clinical perspective, the oncology affiliation with UCSF's cancer center has the same primary goal as Ohio Valley's cancer care relationship with Ohio State, says Williams. "It is important to Community Hospital that we provide the highest level of cancer care locally for our patients. When treatment is not readily available, we are aligned with a provider that can seamlessly address the need."

In addition to helping ensure that the Monterey Peninsula's oncology patients receive quality care in the most cost-effective setting, Community Hospital's oncology affiliation with UCSF's cancer center yields financial benefits for both partners, tied to service pricing, says Dan Limesand, director of business development at Community Hospital.

"In addition to the clinical elements covered by the affiliation, we have also negotiated favorable rates with UCSF that are applicable to Community Hospital and other Community Hospital Foundation affiliates," he says, noting the hospital's self-insured health plan has benefited from in the partnership. "So when care must be obtained from tertiary-level facilities, we attempt to direct care to UCSF to optimize the partnership and save money via the favorable negotiated rates—a win-win arrangement for UCSF, Community Hospital and its affiliates, and our patients."

New partnership opportunities

Health systems are reaching out to a bevy of relatively new clinical affiliate partners, including organizations that specialize in ambulatory surgery, urgent care, and imaging services.

Although there are significant financial risks and costs, clinical affiliations with urgent care organizations can be golden opportunities for health systems, says Lynne Rosen, CEO of Brookfield, Connecticut–based PhysicianOne Urgent Care. "It fills gaps in care. The shortage of primary care providers makes it difficult to access primary care, and people are becoming well aware that nonurgent visits are inappropriate for a hospital emergency department."

Urgent care organizations such as PhysicianOne, which operates nine facilities in Connecticut, can generate financial gains for health systems in several ways, she says. "With urgent care, the hospital either has outpatient clinics that are trying to do this or their own version of urgent care clinics. At the start of an affiliation, an expert in urgent care would assess the best practices of a hospital's 'urgent care centers' for location, services, hours, and marketing."

Rosen says establishing urgent care affiliations can help health systems more effectively and efficiently provide delivery of care outside the hospital.

Rosen notes that health systems are deepening their relationships with a wide range of external partners, from primary care practices to long-term care facilities.

For health systems, there are reputational and financial risks associated with urgent care affiliations, Rosen says. "They have to have something that ensures the quality of their health system is matched by the quality of care provided by their urgent care partners. There is joint oversight of quality of care."

Start-up costs and the retail nature of urgent care services are significant financial risks for health systems seeking urgent care partners, she says.

"Urgent care is a capital-intensive business. It can cost $800,000 to build a clinic, and there are losses until your community starts to use it. Customer expectations are much higher, and the experience needs to be exceptional to gain people's confidence."

Urgent care organizations also have to pick their health system partners carefully, Rosen says, adding she is mulling some clinical affiliations for PhysicianOne. "Hospitals need to be ready and committed to making a change."

This year, Quincy, Massachusetts–based CareWell Urgent Care established a clinical affiliation with UMass Memorial Health Care in Worcester, Massachusetts. The partnership features the opening of two new urgent care clinics in Worcester this summer.

For the fiscal year ending Sept. 30, 2014, UMass Memorial posted total revenues of $2.3 billion.

Shaun Ginter, CareWell's president and CEO, says he expects the clinical affiliation with UMass Memorial to generate value for a wide spectrum of healthcare stakeholders.

"We see this as primarily a benefit to our patients, who more and more are looking for alternatives to the traditional delivery method of getting services in a hospital. This is a further movement along the continuum of care for UMass Memorial as we continue our push to have a fully integrated delivery system, ready to serve our patients at their convenience, whenever and wherever the service is needed. This is great for patients, payers, and employers, who all benefit from a lower-cost setting."

He says there are elements of the clinical affiliation that are designed to soften the financial impact from lost hospital-based patient service volume.

"We do see the potential to bring new patients into our healthcare system. CareWell clinics will be able to refer patients to UMass Memorial Health Care specialists and primary care physicians when necessary. … CareWell clinics are located within a mile of UMass Memorial Health Care hospitals, ensuring these referrals can be made quickly and conveniently, even in an emergency."

Rosen says the recent proliferation of clinical affiliations reflects a realization among health system leaders that patient service volumes are shifting to outpatient facilities whether their hospitals are ready for the transition or not. "They need to communicate their support for cost-effective outpatient delivery systems, including urgent care. Hospital systems should select partners who have a track record in the successful building and scaling of the urgent care process. Better that they affiliate with new partners than lose that business altogether."

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