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Pondering Value through Partnership

By Jim Kendrick  
   January 08, 2018

When it comes to considering partnering options for community hospitals, there is no simple answer. As a whole, there is a lot more collaboration within the healthcare industry and there are many options for partnerships.

When I’m asked about partnering options, it’s not a simple answer. The question is often prompted by the pressures and uncertainties that community hospitals and healthcare providers face – from legislative reforms, to concerns for the uninsured, reimbursement cuts, and even funding burdens at the state level. The not-so-simple answer is it’s hard to be a small, independent hospital. Even if a hospital currently has no financial challenges, there’s no big brother or sister to rely on during a bad year.

Sometimes there are means by which a hospital can preserve its independence and secure financial stability, for the time being or the foreseeable future. In other situations, the best option may be to give leeway to independence in exchange for access to resources and capital to remain a viable community health resource.

Community Hospital Corporation (CHC) provides help where hospitals need it. Through CHC Consulting, our management and consulting arm, CHC works with hospital boards to assess whether a relationship with another institution makes sense, and if so, what type. Beyond examining the organization’s cost structure and operations, CHC recommends obtaining details that unveil financial health:

  • What are your expenses; if you are over-extended, can you identify cost savings opportunities?

  • Are you optimizing your revenue cycle?

  • What’s your bond covenant status?

  • From demographics to competition, what market area factors are impacting your position and success?

Before seeking partners, it’s also best for a community hospital to take stock and identify strengths – from infrastructure to services and medical staff – as well as the resources and support desired through a new relationship.

If a partnership is the recommended pursuit, there are different types available. Many hospitals are exploring options ranging from governance and ownership transfers to business management deals, and clinical affiliations. CHC has a long history of guiding hospitals in finding suitable partners.

An affiliation agreement transfers neither risk nor governance: The smaller organization maintains control, and should it fail, the larger organization is not financially at risk. The smaller hospital benefits by leveraging the larger organization’s purchasing power and using its resources and physician relationships.

A merger of equals occurs when the parties combine assets to form a new company. This type of partnership tends to work when both parties perceive that each will be made stronger by coming together.

Sometimes finding a buyer versus a partner is the right option. Acquisitions involve selling assets and ceding control to the buyer.

As a whole, there is a lot more collaboration within the healthcare industry and there are many options for partnerships. When exploring a relationship with another entity, sometimes the most responsible action is ensuring there is a like-minded mission. Often, working with others is the best way to sustain a viable future.

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