Don't Assume You Need to Join a Health System

It's not for everyone, but for Marin General Hospital, being a standalone hospital means it doesn't have to be a capital contributor to the mothership and can serve its community better.

Lee Domanico wasn't party to the acrimonious decision that broke Marin General Hospital away from the control of Sutter Health. But he was brought on in 2008, shortly after the decision, to help engineer the transition.

It took place in the middle of 2010, and later he became CEO.

Since then, the 235-bed public hospital has continued to successfully buck the trend of hospitals being acquired by larger parent companies that typifies the consolidation that's been the norm in healthcare for years.

In fact, it's been so successful, that MGH has broken ground on a $400 million replacement hospital that will open in 2 1/2 years. With 177 private rooms, floor-to-ceiling windows, skylights, multiple gardens, and the latest in healthcare technology, the new facility is designed to be "at the corner of highly complex medicine and the healing arts," says Domanico.

With its independence secured, Domanico wants other CEOs and boards to know that jumping into the arms of the nearest big-capital acquirer isn't always the best strategic decision.

"There are two types of member hospitals: those that contribute capital and those on the receiving end," he contends. "Marin General, historically, had been a contributor."

If you aren't sure your hospital will be a receiver of capital, you should think over your decision to join a larger health system very carefully, he says.

Know Your Characteristics

To be sure, Marin General has some significant advantages over other small hospitals. Perhaps the most obvious is the affluence of its location.

But the community's wealth doesn't necessarily translate to wealth in the coffers of the local hospital, at least operationally.

That's because there's a significant pocket of indigent population, for which Marin General provides nearly all services as the county's safety net. While the hospital takes care of 80% of the indigent, it only gets about 45% of the area's insured population, says Domanico.

Furthermore, the affluence in the county exists primarily in the senior population, and they don't pay for their care any differently than any other Medicare beneficiary.

"The people who have the wealth are on Medicare reimbursement," he says.

3 Advantages
Marin General does have some geographic advantages—it's bounded by the Golden Gate Bridge to the south, the mountains to the west and a large body of water (the San Francisco Bay) to the east.

To the north is the sparsely populated wine country. These barriers to entry make up one of three characteristics that Domanico says are essential to being successful on a freestanding basis.

"Second, we have an alternative source of funding," he says. As a district hospital, it has the power to use the local tax base for capital.

"For many independents, it's hard to amass capital to replace themselves and reinvest over time," he says. "In our case, we have the tax base to provide funding to create a new hospital."

Third, and most important, Marin General has a cooperative and partnership-oriented medical community, where local providers want to partner with the hospital and see it be successful.

"We don't have a lot of physicians who might be known as splitters," he says. "They only practice here because it's the only full-service hospital in the county."

Wealthy Donors
There is one area where the county's affluence does come in handy: philanthropy.

About $50 million for the construction of the new hospital has been raised from donors. That's another advantage of being a standalone. In a health system, it's not as easy to make the case to donors that their dollars will stay in the community.

"In a health system, the system becomes dominant and the individual flavor of the local hospitals becomes subordinate," says Domanico. "That can make it more challenging to fund-raise."

Open to Partners

But just because Marin General is a standalone doesn't mean it wants to face the future alone. Indeed, since its independence in 2010, the hospital has cultivated many clinical and business partnerships that wouldn't have been available under a parent's umbrella.

UCSF Health and Stanford Health Care are clinical partners now, and an alternative source of capital is a 15-year, $90-million managed services deal with Phillips, whereby the company provides technology and embedded employees on-site to help Marin General deploy technology properly and smooth out cash flow in preparation for moving into the new hospital.

"We have to look for new ways of doing things. Our partnerships now feature collaboration in a peer-to-peer approach rather than as a subordinate subsidiary to a parent," Domanico says.

"That allows us to focus what we do 100% on the residents of our service area."

Being a standalone, at least for Marin General, opens new doors that would have been closed before, says Domanico.

Being part of a system means competition with providers in a broad geographic area, but when your organization is no longer owned by a system, all those former competitors become potential partners and collaborators.

"You have to be very partnership-oriented and friendly," he says.

"As we cement our academic partnerships even further, we will expand our ability to serve a broader geography. Ultimately, that benefits county residents because they can stay close to home and still receive complex medicine."