Full-fledged M&A activity can be risky, which is one reason why partnerships seem to be in vogue. But healthcare CEOs know there are at least a few strategic pitfalls to avoid.
Health systems can pursue ambitious growth strategies that don't necessarily entail extensive merger and acquisition activity.
That's one reason why healthcare strategy leaders are so eager to discuss the topic of non-M&A partnerships, as the industry transforms in the face of disruption and consolidation.
Many senior leaders are deciphering when and how they or their peers should partner, whether by choice or out of necessity.
"Many organizations either don't have a merger partner or the scope is beyond what they want to do," says Joseph Golbus, MD, president of NorthShore Medical Group in Evanston, Illinois. "But partnerships are very much becoming a more prominent way of advancing your agenda."
Here are a few pitfalls to avoid:
1. Don't Assume Competitors Can't Partner
NorthShore began a partnership last year with entities affiliated with Advocate Aurora Health, which is generally considered to be one of its Chicago-area competitors, Golbus says. But the two saw an opportunity to share pediatric resources.
"Many organizations are struggling to have the volume to support a pediatric enterprise, as we were," he says. "Creating a partnership with them, while it's early-on, has really been a very different way of doing business for us but very, very positive."
Suzanne Anderson, MBA, president of Virginia Mason Medical Center and executive vice president of Virginia Mason Health System in Seattle, says her organization has partnered with its rivals on multiple projects, including the Puget Sound High Value Network, an accountable care organization and clinically integrated network that serves Washington state employees.
Although leaders naturally want to keep control in their own hands, there are good reasons to consider a more collaborative approach in limited areas, even as partners continue to compete elsewhere, Anderson says.
"It allows each of the parties to really stay true to who they are but to find common ground and common vision, where when we work together, we can actually leverage the strengths of each other to help each of us," she says.
2. Don't Shy Away From Experimental Solutions
Other health systems, too, are partnering their way to creative solutions for the problems that plague them all.
Seven health systems in New Jersey partnered earlier this year on the Healthcare Transformation Consortium to select a single administrator for their self-insured employee health plans. The aim, they said, is to solve a riddle facing other businesses: how healthcare purchasers can ensure they're paying for high-quality services while reducing overall costs.
Similarly, a growing number of health systems are backing the nonprofit alliance Civica Rx to alleviate another widespread problem: drug shortages and high costs.
And health systems have partnered with payers and even contemplated partnering with the retail giants looking to make a grand entrance into the healthcare sector, in the name of solving the industry's consumerism and cost problems.
At some point, Anderson says, providers may have no choice but to partner with one or more of these non-provider organizations.
"There is a lot of uncertainty about what the future holds, and there are many skill sets that traditional healthcare hasn't developed to the same extent that's available out in the market," she says.
"I think there's going to be a lot of experimentation and a lot of leveraging different skill sets through various partnerships because, quite frankly, there's not enough money for everyone to do it themselves," she adds.
3. Don't Surrender Your Local-Market Edge
Regardless of the opportunity's scope, it's important to assess not only the cultural and business alignment of the potential partner but also the strategic local market impact of the potential partnership, says Gary Baker, FACHE, the CEO of three HonorHealth hospitals in the greater Phoenix, Arizona, area.
"How do you become the indispensable service provider in your market? And do you need to do that all by acquisition, or can you do that through partnership?" Baker says. "And even with partnership, how do you vet out the right partners?"
"You want something that enhances your brand with a partnership, not that detracts from your brand, and I do think that takes some diligence," he adds.
These are some of the topics and questions participants will discuss during the HealthLeaders CEO Exchange, to be held September 25–27, 2019, in Park City, Utah. The gathering includes leading hospital and health system CEOs for a custom dialogue on only the critical issues facing the future of their organizations. For more information, please email email@example.com.
Editor's note: This story was updated Friday, September 13, 2019, with additional information.
Steven Porter is an associate content manager and Strategy editor for HealthLeaders, a Simplify Compliance brand.
Photo credit: Gary Baker, FACHE, the CEO of three HonorHealth hospitals in the greater Phoenix, Arizona, area, participates in roundtable discussions during the 2018 HealthLeaders CEO Exchange. (Photo/David Hartig)
Some leaders say they're finding success in limited-scope partnerships with their rivals.
Keep in mind that you need to make yourself indispensable in the local market.