International Partnership Opportunities Gaining Interest, But Challenges Await Hospitals

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Partnerships between U.S. and foreign hospitals and medical schools are nothing new to the healthcare industry; however, most current partnerships are aimed at expanding education and research opportunities and do not include more formal service line joint ventures or operating agreements. While a few leading academic medical centers have already entered into this space, most health systems have not — and many are beginning to show increased interest in such arrangements.

Why the increased interest?
Traditional revenue streams for hospitals across the country are being challenged, leading hospitals to less traditional methods to generate revenue. International partnerships and joint ventures have the potential to create millions dollars in revenue for U.S.-based facilities. At the same time, foreign governments and health systems are increasingly seeking out partnerships with American and international health systems to improve their quality of care.

The growth of the middle class in many countries as well as improved transparency through the enhanced exchange of information has spurred this desire to improve healthcare delivery. "While healthcare systems world-wide have unique characteristics, strengths and needs, improvements in care financing, access and quality are universal priorities that can best be addressed using a global best practices approach. Governments and healthcare consumers everywhere are demanding transparency and evidence of progress in these areas," says Michael J. Zaccagnino, president and owner at Lucania Partners, a healthcare consulting firm and a former executive at NewYork-Presbyterian Hospital.

These forces have created a growing interest by a gradually increasing number of U.S. health systems — outside of the early adopters to first enter this space — to provide their clinical and management expertise to foreign systems. However, experts warn the decision to expand internationally should not be taken lightly as it includes many challenges that may be too much to bear for those other than the most sophisticated systems.

A shift in goals
Foreign hospital partnerships took a significant turn roughly five years ago, when the first reports of U.S. and international patients traveling abroad for medical care hit the media. When this occurred, many elite U.S. systems — such as Johns Hopkins, Cleveland Clinic and Partners Harvard — were fielding calls from numerous potential partners asking how they could become more attractive to U.S. and international patients. A handful of U.S. hospitals answered the calls, realizing they presented revenue and mission-expanding opportunities.

Since then, however, interest from foreign partners has shifted away from attracting U.S. patients to improving health systems for patients within their own country. While this means opportunities for U.S. partners are still widely available, U.S. partners should be aware these partnerships now have markedly different goals.

"People have come to realize that there aren't going to be 3-9 million patients leaving the U.S. for surgery each year," says Dale Van Demark, JD, an attorney specializing in international healthcare transactions with EpsteinBeckerGreen's Washington, D.C. office. "That mad rush to get into the U.S. market has slowed down. What is left is largely a tier of foreign hospitals that have figured out how to successfully attract international patients. What's interesting is that many of these don't have an affiliation with a U.S. health system." Thus, the international partners currently seeing affiliation are most likely to be aimed at improving domestic health infrastructure and access.

Early adopters
The biggest U.S. players today in international hospital partnerships were some of the first to enter the international market as many of these have since expanded their international programs. Harvard Medical International, now known as Partners Harvard Medical International, University of Pittsburgh Medical Center, Johns Hopkins Medicine International and Cleveland Clinic were some of the first to enter the international space. Each system, however, seems to have different strategies behinds its entry — and this lack of similarity beyond initial financial benefits holds true for nearly every U.S. hospital in the international space, says Mr. Van Demark.

The roots of many international programs began in their medical schools. For example, Partners Harvard's precursor was founded to provide a vehicle through which Harvard Medical School could manage the tremendous amount of interest — and requests for assistance and collaboration — that it received from overseas medical schools, says Chris J. Railey, director of communications and marketing for PHMI. "As HMI's work with top medical schools continued, increasing numbers of healthcare delivery organizations sought our help in the areas of clinical program development, workforce education and facilities planning and development," he says.

Another leading international partner — Johns Hopkins — also provides development and management services and features a number of international "affiliates" that receive clinical and administrative oversight from Johns Hopkins. Its international strategy today is much more aggressive than when it first forayed into the international arena. "In our early days, from around 1998 through the early 2000s, the projects we engaged in were largely opportunistic, meaning they came to us," says Steve Thompson, CEO of Johns Hopkins Medicine International. "Over the years, we've really flipped that. Today, two-thirds of our projects are strategic, and one-third opportunistic."

UPMC was one of the first U.S. hospitals to operate a true foreign joint-venture organization through its organ transplant center with the Region of Sicily in Palermo, Italy.

Cleveland Clinic, on the other hand, has the perhaps the most skin in the international game — currently building Cleveland Clinic Abu Dhabi, which is slated to open in 2012.

Perhaps not as quick to jump into the international market, but now a key player, CHRISTUS Health is a majority partner in CHRISTUS Muguerza in Nuevo León, Mexico — an international market that makes sense for the Irving, Texas-based system.

Hotbeds for partnerships
U.S. hospital-international partnerships span the globe, but for hospitals looking for new opportunities, a few countries stand out. Many countries in the Middle East, including the United Arab Emirates, Oman and Saudi Arabia, are currently making a "real effort to improve the healthcare infrastructure in their countries so those within the countries don't leave to get healthcare elsewhere," says Mr. Van Demark.

Mr. Railey agrees. "In many countries of the Middle East we have seen and continue to see significant growth in infrastructure: new hospitals, new medical schools, new nursing schools to meet rapidly growing demand," he says. "In these markets there is a big need for the kind of early-stage and middle-stage planning (i.e., pre-construction) to ensure that these huge capital investments result in institutions that are set up for the long term."

The same goes for markets like India where the growth is exponential. Private sector healthcare developers are really pushing the boundaries in terms of quality and innovation — they are benchmarking themselves against international standards. Still they need planning assistance to help them get envisioned hospitals and schools developed in a way that balances cost-consciousness, risk mitigation and high quality.

Mr. Thompson adds "BRIC" countries — a moniker used to describe the similar stage of economic development shared by Brazil, Russia, India and China present tremendous opportunities. While not as "hot," some countries in Southeast Asia, such as Vietnam and Indonesia, also present opportunities due to recent socioeconomic and regulatory changes. Sub-Saharan African countries with money from petroleum are also prospects, says Mr. Thompson.
Many countries not only want to improve delivery in general but also want to address economic and geographic disparities, using population-based approaches that put the patient in the driver’s seat, says Mr. Zaccagnino.

What foreign partners want
Generally, foreign governments and health systems initially seek partnerships based on "brand," but this doesn't mean they are completely closed off to other opportunities.

"To some degree [partner selection] is initially driven by name recognition and reputation," says Mr. Thompson. He notes that traditionally academic medical centers have been most involved in foreign collaboration opportunities due to the training and educational activities that drive most collaborations.

Mr. Van Demark adds, "Foreign governments reach out to these world-recognized U.S. centers in part because of the very logical assumption that if I have [a name-brand academic medical center] in my organization, patients will feel more comfort about the quality of care they receive."

In addition, Mr. Zaccagnino notes that healthcare systems everywhere have room for improvement, and many foreign governments and development companies are very sophisticated and savvy with respect to selecting partners and structuring collaborations that allow them to achieve specific strategic and performance objectives.

While it may be more challenging for those outside these early adopter health systems to enter the market, opportunities do exist. Nebraska Medical Center, for example, has found a niche by offering no-cost training to foreign allied health professionals.

"On my visits [overseas], it became clear that most international physicians were generally well trained, but the ancillary, allied health and support personnel really needed specialized training," said Nizar Mamdani, executive director and founder of The Nebraska Medical Center's International Healthcare Services. "And, I thought, 'nobody else was doing this.'" This niche offering makes TNMC stand out as a potential partner in a way that might not have been possible if it had focused on physician training or hospital management. Currently, IHS has entered into strategic partnership agreements with 118 institutions. While it has yet to enter into a formal joint venture, Mr. Mamdani says TNMC is "in serious negotiations to establish such relationships."

Opportunities for U.S. hospitals
Hospitals that are able to provide training, management and other services to foreign groups find themselves in an opportune time to expand these services. In many cases, they not only expand the mission of the organization internationally but they also provide additional revenue opportunities. However, hospitals must be willing to commit serious resources to this pursuit in order to be successful.

In most cases, hospitals are paid fees for their services by their foreign partners and in some cases may bill for services provided overseas. Another benefit — one that is especially important for systems like TNMC that provide some training services free of charge — is enhanced international reputation, which draws foreign patients to U.S. partner institutions for specialized care.

"With the increase in medical tourism, our healthcare reforms, adjustments in our reimbursements and realignment of our healthcare resources, more and more U.S. healthcare institutions are seeking additional revenue sources. They are realizing that there is a tremendous potential in developing international relationships to foster their revenue — through international patient referrals, second opinion programs, teleradiology and telepathology programs, and through training and educational programs. All of these can be directly reflected in the improvement of an institution's bottom line," says Mr. Mamdani.

However, Mr. Mamdani believes hospitals will need to offer customizable solutions to each organization they work with. "Irrespective of the size of the hospital, I think that many hospitals can have successful international programs. The key is to understand the needs of the country and the institution and to customize a program that would best help support the partnering institutions," he says. 

Mr. Railey agrees. "Hospitals that are willing to do good work internationally will have a good chance to identify and capitalize on international opportunities. Even the largest and most renowned of the U.S. academic medical centers may not have the appetite to respond to or serve every need expressed around the world. So there are opportunities for other U.S. hospitals to carve out a niche that works well for them," he says.

Others, however, counter that international collaboration may be very challenging for some hospitals — at least those without employed medical staffs. "A smaller or non-academic system is going to challenge on doing this; those hospitals almost always have volunteer medical staff, which doesn't provide the hospital with a vehicle to allow [the physicians] to give up private practice to participate in consulting," says Mr. Thompson. "The financial model doesn't work for them." 

Challenges with foreign partnerships
Despite the numerous opportunities they present, international programs and partnerships present many challenges. Not only do they require significant financial and human capital, but they also present a number of legal risks.

According to Mr. Van Demark, the most pressing legal considerations for international hospital partnerships include:

  • Domestic health regulatory requirements (such Stark Law and the Anti Kickback Statute), which may have application with respect to international activity;
  • The Foreign Corrupt Practices Act, which addresses accounting transparency and the bribery of foreign officials;
  • The material support statute (§2339B), which prohibits any sort of business relationship with any individuals or entities identified by the government; and
  • The venture's impact on a non-profit health system's tax-exempt status.

Final considerations
Any health system considering the launch of an international program should weigh the opportunities against the risks given its situation and expertise in the international healthcare arena before moving ahead with any initiative.

Systems that seek to build partnerships and develop solutions based on global, multi-national collaborations will have the most success. International healthcare is not an "import-export" business, it's much more about fusion than transactions. Most importantly, hospitals must also consider if these partnerships fit within their organization's mission. For example, many health systems define their mission as providing care to a local community, which may not align with international partnerships. Those, however, that define their mission as improving health on a larger level are certainly better positioned to pursue these agreements.

"One of the first things we look at when pursuing a partnership is if it fits within the mission of our organization. We're working with a top-line objective to improve the quality of healthcare, and if the opportunity doesn't fit within that, we're done," says Mr. Thompson.







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