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Keeping Healthcare Local: Why Some Providers Choose Non-Ownership Collaborations Over Mergers

In the midst of a wave of consolidation, some hospitals and health systems prefer to pool their resources while remaining independent.

In July, Trinity Health, a nonprofit health system based in Minot, N.D., made a decision more and more healthcare organizations have been making lately. The health system joined forces with a larger entity — Rochester, Minn.-based Mayo Clinic.

"When we learned of the Mayo Clinic Care Network and how it was bringing together hospitals across the region and beyond to collaborate to improve patient care, we thought that was fitting right in with our strategic plan," says Randy Schwan, Trinity's vice president of marketing and community education.

However, unlike many other recent partnerships formed between health systems and hospitals, Trinity's joining the Mayo network doesn't involve the larger system taking ownership. The pressures to cut costs, improve quality and coordinate care have resulted in a wave of merger and acquisition activity, with many hospitals and health systems pooling resources to stay afloat during a tumultuous and demanding time in the healthcare industry. However, some organizations like Trinity have decided to find a way to collaborate with other providers without actually getting absorbed into a larger system.

Mr. Schwan says Trinity wants to remain independent to serve the unique needs of its community in a way only local ownership can, while still benefiting from Mayo's expertise.

"We're a strong, not-for-profit, community-based provider," Mr. Schwan says. "We can use and leverage their resources for the improvement of care for our providers and patients without sacrificing autonomy and local control."

Staying separate in a sea of consolidation: why some providers prefer to remain independent
As the pressure to hold down healthcare costs becomes more intense and the Patient Protection and Affordable Care Act continues to revamp the healthcare landscape, hospital merger and acquisition activity has surged in recent years, with more than 300 estimated hospital mergers since 2007, according to the FTC. In the second quarter of 2013 alone, 15 hospital mergers and acquisitions were announced, according to a report from Irving Levin Associates.

The summer of 2013 in particular got people talking about mergers, with Dallas-based Tenet Healthcare Corp. agreeing to buy Nashville, Tenn.-based Vanguard Health Systems in a $4.3 billion transaction, and Franklin-Tenn.-based Community Health Systems revealing its planned acquisition of Naples, Fla.-based Health Management Associates in a deal valued at $7.6 billion.

Still, not all hospitals and health systems are merger-minded. Mr. Schwan says that local ownership and decision-making has served Trinity well, and they prefer to keep their leadership where it is, although he doesn't rule out exploring other options in a changing healthcare landscape.

"We in rural North Dakota have certain challenges that we face that are unique in access to our region and in serving the needs of our residents," he says. "In many cases, the returns one might gain in rural healthcare are not attractive for investor-owned organizations. Still, we have the obligation and are committed to providing services needed in the region, even low-profit services."

For that reason, the non-ownership collaboration with Mayo Clinic appealed to Trinity. The 21-member network — which publicly accepted its first member roughly two years ago — extends the Clinic's knowledge and expertise across the nation while still keeping healthy, independent healthcare organizations healthy, regional and independent, says David Hayes, MD, the network's medical director.

"We would prefer not to do large-scale acquisitions," Dr. Hayes says.  "We think there are real advantages for care staying local. For us it's about practice extension. It's one thing just to merge and acquire, but if you're not truly integrating and you're not trying to extend the practice, it's not necessarily the best for patient care."

That philosophy seems to apply to a considerable number of hospitals and health systems as well, given the traction the program has gained so far, Dr. Hayes says. Mayo has mainly just responded to queries from organizations that want to join, he says. Those potential members go through a comprehensive due diligence process to make sure their culture lines up with Mayo's, among other factors. "We want to make sure, at the end of the day, that we're affiliating with quality organizations," he says.

Mary Jo Williamson — the network's administrative director — says a number of healthcare entities approached Mayo because they felt threatened by the increase in consolidation and felt the need for alignment. "They were saying they wanted to remain independent, but because of their size or scale or just healthcare today, they wanted to have an alignment to leverage knowledge from a larger organization," she says. "There was a mutual objective of wanting to work together in a way that lets independent healthcare organizations stay independent while still leveraging assets that smaller organizations couldn't."

Grand Forks, N.D.-based Altru Health System decided to join Mayo's network after considering the growing rate of consolidation in the industry and coming to the conclusion that local decision-making was the best path to follow, says Dennis Reisnour, chief planning executive at Altru. "We didn't feel that consolidation was the right thing for our organization and our community because patients wouldn't benefit. We still really wanted to work with a larger organization to advance the care we're providing," he says.

Mayo and its partners aren't the only advocates of non-ownership collaborations. Earlier this year, Cleveland Clinic and Franklin, Tenn.-based Community Health Systems created a strategic alliance to improve quality of care, reduce costs and enhance access to care.

The partnership wasn't a merger or acquisition, and both organizations have remained independent entities while maintaining a collaborative relationship. Last month, the two organizations entered into exclusive negotiations concerning a joint venture purchase of certain Akron (Ohio) General Health System assets.

Cleveland Clinic has numerous collaborations and affiliations with other healthcare organizations in place, including the strategic partnership with CHS, says Ann Huston, Cleveland Clinic's chief strategy officer. The Clinic doesn't think full mergers are always the best way to achieve its objective of promoting value-based care and extending its reach at this time, she says.

"Driving value does not require a merger," she says. "We will remain independent, but we do expect to continue pursuing a variety of individual joint initiatives that meet very clear objectives."

Benefits to providers and patients: Improving quality without the burden of operational concerns
Non-ownership collaborations can produce benefits for both providers and patients. Mayo Clinic Care Network members have access to information-sharing tools such as eConsult, which lets providers draw on Mayo medical specialists' expertise so patients don't have to make additional appointments or travel to get the care they need.

"We have about 40 patients a month now where our physicians are able to have an eConsult with specialists in Rochester," says Mr. Reisnour of Altru. "From here to Rochester, it's about 400 miles. Many of those patients, in the past, would have been referred to Rochester and ended up making that trip."

Mr. Schwan says the collaboration with Mayo lets Trinity use the clinic's expertise to enhance care without having to worry about operational challenges and other concerns that would come up if the partnership were a full merger. "We leverage them to improve healthcare quality and options for patients and our providers without getting bogged down in reimbursement and recruitment and equipment challenges we might be facing," he says. "We also have the ability to explore, through their expertise, questions or issues we might face here through their healthcare consulting arrangement. We seek to implement best practices in both clinical and nonclinical operations through this arrangement."

The network also helps Mayo grow stronger as well as spread best practices across the country as the demand for better care increases. "It gives us a way to create infrastructure for physicians to exchange information about clinical questions to create new, novel and more efficient ways to treat individuals," Ms. Williamson says. "From our perspective, we think that we'll be further ahead by pursuing this. Integration is going to be a key element to the value that's going to be driven across healthcare."

Dr. Hayes agrees building a network like the one Mayo is constructing will put the organization at an advantage in the future. "It maintains and builds relevance in a changing healthcare market," he says. "We've got a known group of organizations, and we could do something across the network if we needed to. We could overlay products and services across the network. We feel like we're a step ahead by virtue of those relationships."

Ms. Huston says the partnership with CHS similarly makes Cleveland Clinic stronger. Additionally, the Clinic can help CHS as well. For instance, she says they're helping CHS to amplify its quality management system by providing access to an array of Cleveland Clinic resources, such as clinical expertise, program development, education and clinical integration capabilities.

Not enough commitment? The possible drawbacks of affiliations short of mergers
Not everyone thinks non-ownerships affiliations and collaborations prove more beneficial than full acquisitions and mergers. Nathan Kaufman— managing director and founder of healthcare consulting firm Kaufman Strategic Advisors — says affiliations can sound good but might not necessarily help healthcare providers in crucial ways.

Gaining economies of scale and economies of expertise is a key component of an affiliation between healthcare providers, and accomplishing that requires hard choices, Mr. Kaufman says. "In mergers, when they have to make hard decisions, there's really no way to put the yolk back in the egg or unwind the relationship," he says. "It enables the organization to make hard decisions."

On the other hand, it's easy for organizations involved in a less serious collaboration to back out of the partnership rather than make hard choices that will lead to gains in quality, profitability, market share and access to capital, he says. "It's the difference between dating and getting married," he says. "Good strategy improves market share and profitability. I know of little empirical evidence that these affiliations have measurably improved either."

Nevertheless, organizations like the Mayo Clinic and its network members seem to feel a non-ownership collaboration is the best choice for them right now.

"Once you acquire, then you're in complete control, but it also means a lot of work to integrate," says Dr. Hayes. "We've done a lot of that. We've got a large health system. This is just a different approach. In terms of forming a large number of relationships, this seemed to fit us best for 2012 and 2013 and the near term."

Conclusion
When it comes to long-term strategy, Mayo might consider changing its approach, depending on the healthcare environment, although that possibility seems remote right now, Ms. Williamson says. "The government could, in one fell swoop, put something in the place that could make it difficult to operate if you don't own broadly, but we don't see that on the horizon," she says. "Our goal is to really maximize this non-owned approach."

Trinity has a similar outlook. "With the changing landscape in healthcare, there's always room for exploring other options," Mr. Schwan says. "As it stands today, we are a local, community benefit organization."

Likewise, Altru would like to maintain its independence but could change its stance depending on the shifting healthcare landscape. "You can never say never," says Mr. Reisnour. "Given the changes we're all seeing in our industry, we might be forced to tie in with a bigger organization just for access to capital, for example."

More Articles on Hospital and Health System Collaborations:
3 Maryland Hospitals Sign LOI to Form Regional Alliance
UC Irvine Health, MemorialCare Health Strike Affiliation
Trinity Health in North Dakota Joins Mayo Clinic Network 

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