Hospital and IDNs are seeing more benefits in affiliations and collaborations
By William Foltz, analyst for the Major Accounts Exchange (MAX)
As health systems face rising pressure to improve patient outcomes, reduce costs, and provide more cost-effective care, most hospital and IDN leaders have recognized the potential advantages of teaming with other organizations. The dramatic increase in hospital mergers and acquisitions in recent years reflects how many hospitals have sought to adapt to healthcare reform. However, the growth of affiliations and other less restrictive partnerships has been equally strong and suggests that collaborations represent a valuable way to meet today’s healthcare delivery challenges.
Reasons to affiliate
While finances are obviously a concern for many hospitals, they are not the primary driver of most affiliations, according to Yulan Egan, a research and insights consultant at The Advisory Board Company. “A lot of the looser affiliation models that we see springing up now are actually occurring between financially healthy organizations that have very different reasons for partnering with one another,” Egan says.
The exact nature of affiliation agreements depends on an individual organization’s specific needs and strengths, but Egan says most partnerships involve one or more of the following four goals: to participate in population health initiatives or to build the necessary infrastructure to do so; expand clinical services, often in certain specialties; take advantage of economies of scale in administrative or purchasing functions; and form an integrated network of providers in order to market a benefits plan to employers or payers.
The transition to value-based payments and population health management is an integral part of healthcare reform and arguably one of healthcare organizations’ most daunting challenges, given the cultural change and infrastructure required for success. It is also a major reason why health systems have begun cooperating with each other. “We see a lot of organizations coming together to share the investment that they need to make in IT and staffing that are necessary under healthcare reform,” according to Egan. “Many actually partner around an ACO, sharing management of a single patient population.” One recent example is River Health ACO, a collaboration between Pennsylvania health systems PinnacleHealth, Susquehanna Health, Laurel Health, and several local providers. It was approved as a Medicare Shared Savings ACO in January 2014 and covers 41,000 patients in 14 central Pennsylvania counties.
Other affiliations offer hospitals an efficient alternative to investing in new service lines and programs. Clinical partnerships expand patient access to specialties like cancer and cardiac care, often through visits or remote consultations from specialists at neighboring organizations. The relationships typically involve a smaller hospital partnering with a larger one, such as in the June 2014 affiliation between 64-bed York Hospital in Maine and 830-bed Massachusetts General Hospital. Two health systems may also decide to coordinate specific services even if both have strong programs. Saint Joseph’s Hospital and Regions Hospital, two Minnesota medical centers nationally recognized for cardiac care, formed a cardiothoracic surgery affiliation in June 2013 not only to provide greater access to subspecialty care, but to reduce duplication of services in their markets, which helps lower overall health spending.
While partnering with other organizations can benefit a hospital’s clinical operations, it also presents opportunities to reduce costs. Improving group purchasing and administrative functions such as physician recruitment efforts and revenue cycle processes have been key goals of many recent hospital partnerships. Examples include the affiliations between Catholic Health System and Orleans Community Health, Scotland County Memorial Hospital and Blessing Health System, and PinnacleHealth and J C Blair Memorial Hospital.
Such agreements are very common among rural hospitals, according to Yulan Egan. “Critical access hospitals or community hospitals located in rural areas have seen the most success, often because they have more of a burning platform to address cost efficiency.” These hospitals have a longer history of cooperating with each other out of necessity and over time, many have created formal collaborative ventures. One example is the Western Healthcare Alliance, which was established in 1989 to address the needs of rural hospitals in Colorado and explore ways for organizations to combine their resources.
An ambitious affiliation
Possibly the most comprehensive and ambitious type of affiliation has been the development of the “narrow network,” in which two or more organizations attempt to combine their delivery systems into a highly efficient, integrated network while still technically remaining independent. The resulting network can then be sold directly to employers at a lower rate than they could find through a commercial insurer. One such venture is Healthcare Solutions Network, a collaboration between Cincinnati-based TriHealth and Saint Elizabeth Healthcare, which operates hospitals and clinics in Northern Kentucky. The network is not currently operational, but intends to start implementing population health initiatives with current employees and may offer a Medicare Advantage plan later in 2014. Another is Together Health Network, which formed after Ascension Health and CHE Trinity Health decided to integrate their Michigan-based holdings in May 2014. Together Health is expected to market its network to employers and insurers before the end of the year.
Though the concept of narrow, clinically integrated networks resembles the structure of ACOs, most are still very new ventures and not all have fully adopted the value-based payment component found in ACOs, according to Egan. “We see both payment systems; over the short term, the networks operate on a fee-for-service basis, positioning themselves as a lower-priced option relative to a lot of the broader networks assembled by commercial payers.” Over time, she adds, many will start to market their network as a pay-for-value insurance product.
Shifting landscape
The types and scope of hospital affiliations will likely keep shifting as the pressures of healthcare reform increase over time. National partnership initiatives, such as the Mayo Clinic Care Network and Cleveland Care Network, operated by Cleveland Clinic, are a newer form of collaboration that has witnessed considerable growth in recent years. The networks, through which hospitals and health systems pay a fee for access to established clinical protocols and consultations with experts, have drawn members from both small hospitals and larger integrated systems. The networks help their members improve care while avoiding some of the conflicts of local affiliations, according to Egan. “When you come together around a specific clinical area on a local or regional level, organizations often find that it’s hard to overcome the competitive pressures because both parties ultimately want to keep as many patients within their own organizations as possible.”
Like so many aspects of healthcare delivery in an uncertain climate, the ultimate effectiveness of these new affiliations has yet to be seen. Not every partnership yields the expected benefits. Few can argue, though, that they aren’t a positive step to a better, more efficient healthcare system.