Many hospitals and health systems are turning to partnerships as an alternative to mergers and acquisitions.
MarinHealth, a small health system based on a 327-bed hospital in the San Francisco Bay area, is one of many that has maintained its independence through joint ventures and clinical affiliates. The Greenbrae, California-based system has continued to develop a longstanding relationship with UCSF Health, allowing MarinHealth access to the electronic health record infrastructure of UCSF and its specialists. MarinHealth is also part of the responsible care organization Canopy Health, which has a network of more than 6,000 primary care physicians, specialists, and other health care providers in the Bay Area.
Chief Executive Officer, Dr David Klein, who took the helm in September 2020, said: “Our partnership with UCSF gives us the ability to recruit one-of-a-kind professionals. two, such as in neurosurgery and cardiothoracic surgery”.
Klein said the MarinHealth board told him when he was hired that the health system should remain independent. More than two years later, Klein said he doesn’t envision the organization being forced to merge with another system.
That sentiment is increasingly rare as many health system executives are constantly surveying the field for potential merger partners. Systems often seek consolidation to allocate rising labor and supply costs to a larger organization, expand their reach, and improve their position in the bond market amid the landscape. interest rates rise and investments fall, while increasing their bargaining leverage with commercial insurers to mitigate Medicare reimbursement cuts.
According to an analysis of about 700 nonprofit hospitals by consulting firm Kaufman Hall, consolidation pressure has increased as the average day’s cash is down 23% year-over-year.
But some health systems have found that partnerships can provide the same benefits as mergers and acquisitions without changing control and increasing operational complexity.
In the case of MarinHealth and UCSF Health, two UCSF representatives sit on MarinHealth’s board of directors. The 10-year strategic alliance formed in 2018 includes clinical and information technology integration as well as a $110 million capital investment from UCSF. This agreement also allows MarinHealth to use the UCSF Health brand and MarinHealth physician locations operated jointly with UCSF.
Rapid City, South Dakota-based Monument Health, formerly Regional Health, has also pursued partnerships to maintain independence. Monument formed a group purchasing partnership with Sioux Falls, South Dakota-based Avera Health about 14 years ago to increase purchasing power. Paulette Davidson, Monument’s president and chief executive officer, said it has saved each organization millions of dollars annually.
Davidson said Monument also joined the Mayo Clinic Care Network in 2020, giving them access to Mayo’s research, diagnostic and treatment resources that are especially valuable to the medical system rural economy like Monument. “Monument Health prides itself on being independent and based on a collaborative philosophy,” she said.
Hospital and health system mergers have subsided in recent years as most acute care markets have become highly consolidated. According to the American Hospital Association, more than two-thirds of the country’s 5,139 acute care hospitals were part of larger systems as of January 2022. Fifteen years ago, the percentage of hospitals was under the system compared to independent establishments is almost 50-50.
Neil Olderman, a partner at the law firm Faegre Drinker Biddle & Reath who specializes in healthcare transactions, said increased regulatory oversight of hospital consolidation between the Federal Trade Commission and the Federal Trade Commission. The state and the state attorney general have also blocked the merger.
“Our clients are looking for joint ventures, strategic deals or partnerships more than acquisitions,” he said. “As the regulatory environment and the number of healthy targets involved in a region decrease, there will be fewer merger combinations.”
Duke Health based in Durham, North Carolina and LifePoint Health based in Brentwood, Tennessee formed a joint venture in 2011. The joint venture between the academic health system and the for-profit hospital chain operates more than a dozen hospitals across North Carolina, Virginia, Pennsylvania and Michigan. The goal is to combine Duke’s quality and clinical expertise with LifePoint’s capital and management expertise.
“Patients want to be closer to home and we think we can provide locally delivered care in a safe environment,” said David Dill, President and CEO of LifePoint. . “We bring together our operational expertise and capital investment. With that, our volume increased, our market share expanded, and our quality improved.”
The joint venture is not limited to equity ownership. The health systems, Dill added, have developed a quality of care program designed for community hospitals and deployed several clinical branches across the hospital network. “Everything happens at the hospital level when it comes to day-to-day decision-making,” he said.
Autonomy was one of the key points that led to the breakup of Washington-based Renton, Providence and Hoag, a small system based in South-California. Hoag split from the 52-hospital system on January 31, about nine years after they merged. Providence’s centralized governance model is accused of stripping Hoag of local decision-making power.
Hoag executives said there had been a series of cultural, financial and operational conflicts. As part of MarinHealth’s split from Sutter Health in 2010, the hospital sued the Sacramento, California-based system, alleging that it illegally transferred $120 million from MarinHealth. About three years later, a judge awarded MarinHealth $32 million.
MarinHealth, home to Marin County’s only designated trauma center, is supported by a strong mix of commercial insurance payers and benefits from the financial assistance of Marin County residents. That has contributed to its relatively strong financial performance relative to its peers. According to Modern Healthcare’s Data Center, it has more than 100 days of cash on hand by 2021, compared with an average of 27 days of cash on hand in hospitals of similar size and composition.
Klein said independence ensures that MarinHealth can sustain local decision-making and investment.
“Partnerships like those with UCSF allow us to be agile and make decisions quickly,” he said. “That means our profits are invested back into the hospital.”
