Can community hospitals remain fiercely independent or will affiliation reap greater success?

The entire healthcare industry is undergoing massive consolidation, and community hospitals have many considerations when assessing whether an affiliation would benefit their facility. During the Becker's Hospital Review 5th Annual CEO + CFO Roundtable on Nov. 9, a panel of industry experts highlighted which market factors may drive affiliations for their centers and how organizations can prepare for the shifting healthcare landscape.

While many of the panelists concurred their hospitals were doing well financially at this point in time, forming affiliations with larger hospitals or health systems may be the name of the game moving forward.

"From my standpoint, we are financially sound. We have what we need and don't have a pressing desire to merge," said Philip Kambic, CEO of Chicago-based Riverside Healthcare. "As I look to the future though, some things that keep me up at night are things changing in managed care from a narrow network standpoint. There is a lot of consolidation in the Chicago market."

Mr. Kambic noted he has concerns about recruiting physicians, stating that he often wondered if partnering with a large health system would alleviate some obstacles for Riverside Healthcare in bringing in new blood. Hastings, Neb.-based Mary Lanning Healthcare also is financially sound, but President and CEO Eric Barber mirrored similar issues and said partnerships may increase a hospital's access to specialty coverage, technology and physicians.

While partnering with larger organizations brings a slew of advantages, such as access to resources, the panelists noted that remaining independent allows their hospitals to accomplish projects at a much faster rate and without the many layers of bureaucracy embedded in large organizations. Bill Sexton, CEO of Prairie du Chien, Wis.-based Crossing Rivers Health, said the center relocated to a new $50 million center, and had the hospital been affiliated with a larger organization, "We would still be talking about whether to move to a new center."

"What we often see here is that if hospitals are financially stable, they want to stay fiercely independent," said Greg Koonsman, CFA, senior managing director and founder of Dallas-based VMG Health. "Most transactions that are being discussed occur when there is financial difficulty. We have seen the payer environment change and more patient responsibility has made healthcare more of a retail business. These changes are showing up in the top and bottom lines of hospitals."

Riverside Healthcare recently brought in an outside group that worked with them on a broad assessment to see where the system stacked up against hospitals in local and national markets.

"From a negotiation standpoint, you want to negotiate when you are at your strongest," Mr. Kambic said. "I would recommend everyone to understand what is going on in your market and get your board to understand [what is happening]."

Community hospitals may need to begin preparing for a possible affiliation, especially as healthcare's future remains largely uncertain. Developing relationships with local hospitals may be key when considering future partnerships and deciphering which organizations would fall in line with your organization's mission.

"We are doing future planning and having 'what if' conversations with our board of directors. Our board is vetting potential suitors in case that becomes a reality. We don't think it will, but we do have relationships now with those hospitals," Mr. Barber said.

"I think back to advice I got early in my career," Mr. Sexton added. "The time to be exploring the market is not when you're out of a job. Stay connected and develop relationships so when the time comes, you can rely on them."

Board education is of exceeding importance, because if the time for affiliation does arise, the board can then articulate the reasoning behind an affiliation to the medical staff and ultimately, the community. The board may be tasked in assuring the community that the partnership will work in their best interest. Mr. Sexton stated it is crucial to connect your community to the "why" behind a possible merger.

"The biggest issue with creating a smooth transition is making everyone understand in a simple fashion your reasons behind doing this, even if the reasons seem obvious to the people working on it [the affiliation]," Mr. Koonsman said. "When people are not part of the discussion, they are frightened."
 
When selecting a partner, that organization's mission and overall strategy should fall in line with your hospital's mission to be successful. When seeking a partner for Crossing Rivers Health, Mr. Sexton noted it is "key for us to have a partner that is focused on the same outcomes and the direction we have."

If the culture and missions of the two partners are in tune with one another, the organizations can consider other nuances of a potential partnership including geography, capital, IT capabilities and contracts, among several other considerations.
 
The decision to affiliate cannot be made in haste and many organizations often have a relationship of some nature before opting to form an affiliation.

"Make sure you look at the value equation. I have worked in a hospital that was owned, a district hospital under a management contract and now I am in an independent hospital," Mr. Sexton said. "What I try to do is try before I trust and try not to test the water with both feet and do one step at a time."

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