Academic medical centers: Trends in mergers, acquisitions and affiliations


Academic medical centers serve as emblems of the highest quality healthcare and icons of the most prestigious medical research and education in the U.S. However, to ensure continued success and financial viability in the future, AMCs must develop or refine their strategies to manage several primary challenges.

AMCs three-pronged mission — patient care, research and education — is both what sets them apart as premier healthcare institutions and situates them to incur unique pressures, compared with hospitals and health systems that are not affiliated with teaching institutions.

They face some of the highest costs of all healthcare delivery systems; AMCs are designed to deliver complex, specialized care while also responsible for the increased costs of supporting medical education and research. Many AMCs are based in urban areas, and subsequently often end up treating a disproportionate share of Medicaid and under- or uninsured patients for emergency, Level 1 trauma and psychiatric emergencies.

As AMCs map out their visions of the future, many have realized their traditional financial and governance structures are no longer compatible with the ever-evolving healthcare landscape.

Scott Becker, JD, partner at McGuireWoods and publisher of Becker's Hospital Review, said many AMCs' strategic plans for the next five to 10 years include meeting higher quality and financial goals by affiliating or being acquired by another system.

"In terms of defining goals, there are four broad goals for AMCs," Mr. Becker said during a webinar hosted by Becker's Hospital Review. "In terms of a Maslow's hierarchy of needs perspective, there is a certain level of need versus a top level of actualization."

The first and most essential question AMC leaders must ask themselves is if they can survive in their current form, or if they need to do something differently, according to Mr. Becker. Making this initial assessment represents the highest level of need for AMCs, with all subsequent evaluations intended to guide the development of a new strategic plan.

Strategy No. 1: Attain regional dominance.The high-quality healthcare AMCs provide make them an attractive choice for many prospective patients in their respective regions. To further strengthen their dominant positions in the market, many AMCs are entering into strategic affiliations or mergers with community hospitals, according to Mr. Becker.

For instance, the brand of Yale-New Haven (Conn.) Hospital, the flagship hospital of the Yale-New Haven Health System, is a fixture in the region's healthcare landscape. To solidify and expand its brand and establish greater regional dominance, the health system has merged and affiliated with other systems. In July, Yale-New Haven Health, which includes Bridgeport (Conn.) Hospital and Greenwich (Conn.) Hospital, entered into a definitive agreement to affiliate with L+M Healthcare, the parent organization of Lawrence + Memorial Hospital in New London, Conn., and Westerly (R.I.) Hospital.

Expanding regional dominance lends AMCs "benefits in terms of payer relationships, as well as the ability to pour more resources into quality, better leadership, hire more physicians and enhance clinical and financial strength," said Mr. Becker.

Strategy No. 2: Achieve greatness in specific areas.Some AMCs may not be considered dominant in their regions, but they are able to maintain their elevated standing because they are the premier providers of a specific service line.

In Boston, TuftsMedicalCenter must compete with several other top healthcare providers, such as Massachusetts GeneralHospital and Partners HealthCare.

"If you look at TuftsMedicalCenter in Boston, it's not the dominant system, but it does do more heart transplants than any other system in Massachusetts," said Mr. Becker. The heart transplant program there "gives [Tufts] a reason to be top in something."

Strategy No. 3: Become a leading international brand.Many AMCs have strong brands that they license to other healthcare providers in the U.S. and use overseas to expand their networks of care.

Many of the top-name AMCs, including Rochester, Minn.-based Mayo Clinic, Cleveland Clinic and Baltimore-based Johns Hopkins, have long-established international brands, which include hospitals abroad as well as services to direct international patients to the hospitals' U.S. facilities. Mayo Clinic operates representative offices in Canada, Colombia, Ecuador, Guatemala and Mexico to help international patients communicate with Mayo Clinic professionals and arrange travel to Mayo Clinic facilities in the U.S. Cleveland Clinic operates hospitals in Abu Dhabi, United Arab Emirates and Canada, with representative offices in the Dominican Republic, El Salvador, Guatemala, Honduras and Panama. Johns Hopkins Medicine's international affiliations include those in Brazil, Chile, India, Japan, Lebanon, Panama, Peru and Turkey. 

However, a strong international brand is predicated on proven clinical quality and prestige at home, according to Mr. Becker. "You can only leverage a great name by being very strong at home," he said. "It's impossible to build an international brand without greatness and regional dominance at home."

Identifying the right strategy

 There are many questions to consider when outlining the future for an AMC, according to Mr. Becker. For example, does the AMC have the wherewithal in its current setting to create an international brand? Are there avenues available to achieve greater regional dominance? Does the AMC have the resources to actually improve its new partners' clinical quality and outcomes if it merges or affiliates with surrounding community hospitals?

AMCs must consider these questions before determining whether mergers, affiliations or alliances are the best option.

At the same time, some AMCs may choose to remain as standalone entities. While many institutions are finding this increasingly difficult to sustain, some — such as University of Chicago Medical Center — remain viable without turning to consolidation.

Other options for AMCs include being absorbed by a third party — such as when Loyola University Chicago sold its medical center to Livonia, Mich.-based Trinity Health in 2011 — joining a statewide alliance, pursuing a merger or licensing a brand. These strategic moves are not mutually exclusive, Mr. Becker points out, noting that affiliations or alliances are often the prelude to an actual merger. Additionally, many of the most prominent AMC names utilize some combination — if not all — of these four options.

The strategic direction AMCs choose to embark on in the next few years will set them on the tracks toward their future. For many, the path to sustainability will be expansion.

"Some of the best AMCs in the country are not in great reimbursement areas, but they've thrived by becoming great institutions," said Mr. Becker. "Sustainability in the long run must be big and dominant enough to afford to take chances. They must be a certain size and scale, and be great at certain things.[They] must be big enough to understand they'll fail sometimes."

Copyright © 2021 Becker's Healthcare. All Rights Reserved. Privacy Policy. Cookie Policy. Linking and Reprinting Policy.


Featured Whitepapers

Featured Webinars