Case Studies
The two case studies offered in this toolkit address increasingly common situations in physician relations. Both are composite case studies based on the experiences of several actual systems and medical groups. In both instances, the organizations are moving aggressively toward accepting and managing more population health risk: Mountain Health System seeks to take its multispecialty physician group to a new level Seaside Medical Group facilitates a partnership and clinically integrated network involving several other organizations
Moving Forward
Moving Forward The steps toward finalizing an acquisition or affiliation will differ depending on the degree of integration involved. A basic road map for moving forward is provided below. Initial Actions Engage legal counsel. Regardless of the degree of integration you seek, all acquisition and affiliation approaches can raise legal issues involving antitrust, fraud and abuse, and other state and federal laws and regulations. Approach/engage your potential partners. If your organization seeks to be acquired by another organization in a competitive process, it may engage an advisory firm that will seek detailed proposals from potential acquiring organizations. Less fully integrated affiliation models may be initiated through conversations between leaders of the potential partner organizations, often with the assistance of an advisory firm. Consider the need for a confidentiality agreement in early discussions with potential partners. Commit to going forward. If a merger is involved, the parties will likely sign a letter of intent or memorandum of understanding on the proposed merger. Depending on the size and market impacts of the acquisition or affiliation, a Hart-Scott-Rodino premerger notification filing with the Federal Trade Commission and Department of Justice may be required. The deal will not be able to close until the federally prescribed waiting period has expired or the government grants early termination of the waiting period. State/local laws and regulations may also apply. Due Diligence The degree of due diligence required will vary by approach. A merger will require the greatest extent of access to books and records to confirm the financial viability/desirability of the acquisition. “Cultural” due diligence is also important. If there are significant potential cultural incompatibilities between organizations, their chances of working effectively together, whether as a merged entity or as collaborative partners, can be significantly diminished. Internal Communications Rumors and gossip that can spread among staff in any acquisition or affiliation strategy can easily delay progress or derail the activity altogether. Once your organization has committed to moving forward, it is critical to inform staff on possible impacts of the acquisition or affiliation activity. The two PowerPoint templates below outline key discussion points in fully integrated and less than fully integrated acquisition and affiliation models. Tool: Communicating with Staff: Full Integration Tool: Communicating with Staff: Less than Full Integration Business Planning While due diligence proceeds, the management teams of the partner organizations should develop: Vision statement Organizational structure Capitalization plan Governance model (powers, roles and responsibilities, reserved powers, voting rights, etc.) Management structure (including, in the case of a merger, the transition team) Early initiatives and priorities Financial projections (including scenarios related to the rate of movement towards value-based payments) Final Agreement The partners should now be ready to negotiate their final acquisition or affiliation agreement. Use the following scenarios to see how different organizations might work through the steps toward an acquisition or affiliation. A stand-alone hospital determines its acquisition and affiliation approach An academic medical center aims for long-term sustainability A multi-hospital pursues a regional strategy and system-wide economies of scale
Determining Your Options: Identifying Potential Partners
Determining Your Options: Identifying Potential Partners With a sense of how your organization’s goals and approaches align, assess which organizations are the best candidates for potential acquisition or affiliation partners. Identifying partnership needs and options What organizations might be potentially interested in partnering? Does your organization require more than one kind of partner? Why? Weighing the options With respect to each potential partner, consider: How would a partnership with this organization change your organization’s current situation? Which needs would they meet? Which needs of the potential partner organization would your organization meet for them? What is the comfort level between your organization’s leadership team and the leadership team of the potential partner organization? Do you see any challenges or disadvantages in partnering with this organization? Is it possible to develop high-level financial projections of the impact of this partnership? Would a partnership with this organization have an impact (positive or negative) on your organization’s: Image or brand? Efforts at physician integration? Culture? Relations with patients, employers, governmental entities, or other community interests? After evaluating each potential partner organization, consider: How do the potential options differ from each other? What does examination of the detailed elements of each option reveal in terms of comparative pros and cons? Of all of the characteristics of the available options, which are the most important to your organization (e.g., governance, capital needs, impact on financial performances, ease of change, physician structures, etc.) ? Why? Based on this comparison, what appear to be viable options? Which is the best option, and which is the next best (i.e., best alternative to a negotiated agreement)?
Determining Your Options: Common Acquisition and Affiliation Approaches
Determining Your Options: Common Acquisition and Affiliation Approaches Now that you understand your organization’s goals and needs, consider whether some form of acquisition or affiliation activity can help your organization reach its goals. Common acquisition and affiliation approaches are defined below. This is just a representative listing; new approaches to acquisition and affiliation continue to emerge. As you review these approaches, consider the following questions: Does vertical or horizontal expansion, or both, best align with your organization’s strategic priorities? How would these be prioritized? Why? How important is diversification as a strategy vis-à-vis traditional market expansion? Are there certain approaches that seem like a better fit for your organization? Why? Would any of these options allow your organization to stop owning certain resources, and instead obtain them through partnership or outsourcing? Does partnership with a health plan offer your organization something strategically important and distinct from other forms of affiliation? In what ways? Tool: Matching Goals with Options Common Approaches Merger of a not-for-profit (NFP) hospital into a NFP system. Usually the merger parent board assumes all assets and liabilities of the newly merged organization. In some cases, the local board continues to exist and may have selected responsibilities such as quality, credentialing, or community need. Merger of an NFP hospital into a for-profit (FP) system. This is typically an acquisition. The acquired NFP is valued, and the value (net of liabilities) often becomes a community foundation. Merger of a NFP hospital into a FP/NFP joint venture. Some transactions involve less than a 100 percent purchase, with the local entity continuing as a joint venture partner. Merger of a NFP into a FP system plus a “quality partner.” FP systems sometimes link with an academic medical center or other organization known for its quality. The “quality partner” may be a joint venture owner of the acquired hospital. Contractual system. Not all consolidated systems are merged entities. For example, local boards within the system might retain all fiduciary powers. The top leaders of the local hospital or system are employed by the larger system in order to coordinate strategies; however, the overall arrangement may be a renewable contractual relationship. Collaborative partnerships. Health systems are increasingly joining, often through contractual joint ventures, to address selected issues together – such as revenue cycle, supply chain, or regional network formation. Examples include the BJC Collaborative, AllSpire Health Partners, and the Integrated Health Network of Wisconsin. “Super” accountable care organization/clinically integrated network (ACO/CIN). Increasingly, clinically integrated networks recognize the opportunity to achieve economies (e.g., sharing population health infrastructure and expertise) by combining with each other. Health plan/provider partnership. These “vertical consolidations” take many forms. In some cases, a health plan, physician group(s), and hospital systems enter a joint venture relationship to serve a large employer. In some cases, health plans have acquired physician groups. Employer/provider partnership. These contractual relationships, usually involving very large employers or a group of large employers, relate directly with provider networks.
Assessing Your Situation – Common Acquisition and Affiliation Goals
Assessing Your Situation: Common Acquisition and Affiliation Goals The answers to questions about your organization and its market in should help define the goals of an acquisition or affiliation strategy. Note that your organization may have multiple goals, which may suggest multiple approaches to acquisition or affiliation. Common goals include: Favorable access to capital. If the investments your organization needs to make to reach its goals exceed its financial resources, a full merger (e.g., one that consolidates balance sheets and fiduciary responsibilities between the merging organizations) may offer access to superior borrowing terms and rates. System-wide economies. If your organization is struggling to find further opportunities for cost reductions, it might benefit from system-wide economies that can come from increased size and scale. Some of these (e.g., supply chain, revenue cycle, specialized expertise) are not dependent on physical proximity of the affiliating organizations, while others (e.g., service line or asset rationalization) do require closer physical proximity. Primary care aggregation. If your organization needs to support specialty and acute-care services, it is important to connect/integrate more primary care physicians with the system. A strong patient referral network is even more critical since inpatient and even outpatient facility utilization per patient will likely decrease. Population health expertise. Your organization may want to affiliate with another organization that is farther along the path to population health. Note that an organization with multiple needs (e.g., improved capital access and population health expertise) may choose different partners and different methods of affiliation to meet these needs. Population health infrastructure. The costs of developing an infrastructure to manage population health can be significant. Collaborative development of this infrastructure with other partners (including interoperable EHRs, other IT and business intelligence tools, clinical benchmarks and care pathways) may make more sense than going it alone. ACO/CIN formation. Organizations need not merge in order to amass the large populations that are desirable to manage care efficiently. Time will tell whether merged or affiliated CINs perform most effectively. Other regional economies. Many health systems are working now to aggregate an efficient, cross-continuum regional delivery system: from primary care, to specialist and acute services, to pre- and post-acute care options, and beyond. Other payment initiatives. Vertical integration between providers and insurers, employers, and other payers can leapfrog capabilities for the aggressive health system that wants to participate in managing the premium dollar. These benefits may or may not require other forms of consolidation (such as mergers).
Assessing Your Situation – Market Assessment
Assessing Your Situation: Market Assessment The next step is to take a close look at the market or markets your organization operates in. What communities and populations does it serve? How much competition is there among provider organizations? Who are the major payers in your market? Market Area What is the demographic makeup of your patient population? How is this likely to change in the future, and what are the implications for your organization? How well does your organization understand community needs at a sub-population level? What are the sub-populations, and what challenges and opportunities do they present for your organizations? How do you predict that the needs of the populations you serve will change in the future? How well do you think your organization can adapt to meet these needs? Provider Market What is the competitive landscape in your market area? How is it changing, and what are the drivers of these changes? What are the potential implications of changes among/by competitors for your organization? Which organizations among your competitors are real threats? Why? Which organizations among your competitors represent potential partners? Why? Payer and Purchaser Market Does a single payer dominate your market or is there competition among payers? How aggressively are payers moving toward value-based reimbursement? How are payers determining with which providers to partner on new payment methods, population health infrastructure, limited networks, etc.? Is your organization a potential partner, or is it excluded from these discussions? What would make it a more attractive partner? How prevalent are provider-owned plans in your market? What is the potential for new provider-owned plans to develop? How influential is the employer purchasing community in your market? What demands and expectations do they have of providers, and how are these changing? What impact, if any, have insurance exchanges and limited network plans had? What is the potential, and what are the possible implications for your organization? Reflecting on your answers After reviewing the answers to your organizational and market assessment, how you would answer the following questions: How will your organization fare in an environment of both fee-for-service and value-based payment in its current state? Would it fare better if it pursued some form of acquisition or affiliation? How much effort and investment lies ahead to prepare for population health management, which is required under most value-based payment mechanisms? Is your organization equipped to dedicate the needed effort and capital, or will it need additional resources? Is your organization’s strongest position for negotiating participation in an acquisition or affiliation model now or later?
Assessing Your Situation – Organizational Assessment
Assessing Your Situation: Organizational Assessment The first step in developing an acquisition and affiliation strategy is to assess the strategic vision and goals of your organization, its financial and market position, and current readiness to meet its goals. Answers to the questions below will help identify the strengths and weaknesses of your current situation and begin to define your organization’s needs to meet its goals. Strategic Vision and Goals What has your organization articulated as its strategic priorities? What business or businesses is your organization? How have answers to these questions changed, or how do you predict they might change, in light of emerging market pressures? What are your organization’s long-term goals in terms of care delivery, operational performance, community service, brand reputation, other? How willing, and capable, is your organization to take risks to accomplish this emerging vision? Is your organization willing to change its tax status, or affiliate with organizations of a different tax status, to accomplish these goals? Can your organization accomplish its strategic priorities on its own, or is there a need to be part of a larger organization in order to be successful? Financial Position How solid is your organization’s financial position in terms of its ability to meet its capital requirements in the future? Why? Has financial performance been improving, steady, or deteriorating? Why? How does your organization anticipate that market trends will affect utilization and future financial performance? Can your operating margin and balance sheet weather these projected changes? What is the growth trajectory for your business, and what are your investment needs to support this growth? What are your organization’s key strategies to improve financial performance? How important is it to your organization to diversify sources of revenue? Why? Is your organization financially positioned to consider acquisition of another organization? Will it need to consider being acquired to meet its financial needs Market Position What is your organization’s estimated market share? Is it improving, flat or decreasing? What are the underlying reasons? What estimated market share do you think you need to be successful in the future? How well does your organization meet your community’s needs for hospital services? How do you know? Where is your organization ranked in your marketplace on the basis of: Service Clinical Quality Cost to Care Purchasers Physician network How strong is your existing physician network? Do you have an adequate base of primary care providers to meet current and projected future needs? Do you have the right mix and number of specialists to meet current and projected future needs? Are there opportunities in your market(s) to align with additional primary care or specialist practices to meet your current and projected needs? Current readiness What are your organization’s internal strengths and weaknesses? Do you have the right executive team and board members in place to position for the future? If not, what types of people do you need? How well does your organization understand the health needs of your patient population? What investments will you need to make to manage these needs? What capabilities does your organization have to improve care delivery processes and outcomes? What track record does your organization have? Has your organization been able to make significant cost reductions in any of its service lines or clinical processes? If not, what are the barriers to achieving cost reductions? How capable is your organization of change? How do you know? How has leadership enabled flexibility, or made it more difficult to achieve? How prepared is your organization to accept contracts involving value-based reimbursement?
Acquisition and Affiliation Toolkit – Home
Introduction This toolkit is a companion to HFMA’s Value Project report on Acquisition and Affiliation Strategies. Consolidation is a rapidly evolving strategic focus for health care organizations. As the report suggests, new forms are continually appearing. This toolkit offers tools for assessing your organization’s situation, determining acquisition and affiliation options, and moving toward finalizing an agreement with an acquisition or affiliation partner. It also provides three examples scenarios to illustrate how these tools might be put to use in setting a course for your organization. Toolkit Directory We encourage first-time users of this toolkit to review the sections in the order listed below. You can then use this directory to navigate to particular sections of interest. Assessing Your Situation Organizational assessment Market assessment Common acquisition and affiliation goals Determining Your Options Common acquisition and affiliation approaches Identifying potential partners Educating your board Moving Forward Communicating your strategy internally Key steps in finalizing an agreement Example Scenarios A stand-alone hospital determines its consolidation approach An academic medical center aims for long-term sustainability A multihospital pursues a regional strategy and system-wide economies of scale
Acquisition/Affiliation – Scenario 3
Leaders at Pyramid Health, a multi-hospital system, ask, “How can we continue to pursue system-wide economies, but also respond to regional issues and opportunities?” Assessing the Situation Pyramid is a national for-profit health system with 75 hospitals of varying sizes. Pyramid’s hospitals are located in 15 states. The system also includes 10 large medical centers, including seven that are widely recognized for excellence in both efficiency and quality. Another 30 are suburban community hospitals, and 35 are smaller, rural facilities. The system has already leveraged its national scale in areas such as supply chain and revenue cycle, and produces excellent financial results. Leaders see ongoing opportunities to maximize efficiency by standardizing as many approaches as possible. However, this is not always possible given legacy IT systems, differences in size and sophistication among the hospitals, and different market and state government environments. Across the 15 states, Pyramid’s markets vary greatly in size, demographics and competitiveness. And, the payer environments also vary. Initially, many of the markets were slow to move to value-based payment, but Pyramid is seeing clear signs of escalation of that trend in most of its marketplaces today. Given the unique characteristics of the organization and the general characteristics of the markets in which it operates, Pyramid leadership has articulated the following prioritized organizational needs: To move from fee-for-service to value-based payment and population health management without diminishing Pyramid’s outstanding financial performance. Be number 1 or 2, in terms of market share, in each existing market. Pyramid leaders believe larger patient populations are critical to attain the benefits of care management at the population level. They also believe this degree of market presence is vital to ensure success as inpatient utilization in general declines. Add population health expertise and infrastructure. Build on Pyramid’s system-wide economies by tailoring its approaches regionally. Evaluating Options Pyramid’s strategies are market-specific; however, at a high level, they include: Continue to purchase community hospitals, but do so more selectively than in the past. Pyramid aims to be extremely selective about adding inpatient beds to the system. Seek the development of regional hospital clusters. Pyramid believes that a “cluster” approach will provide the ability to effectively compete for new payment agreements and to achieve new levels of efficiency, quality and patient involvement. When key hospitals, expertise or infrastructure for population health cannot be purchased within a region, collaborate. Pyramid leaders find that many potential collaborators in most markets are willing to talk with them about options. In some markets, these potential collaborators include current competitors. Pyramid uses these discussions with potential collaborators to refine its strategies. Leaders anticipate tailoring their approaches and timing to reflect the distinct markets, capabilities, and cultural differences across its system. Pyramid leaders characterize the viable options for consolidation as the following: Partner (or purchase) the expertise and infrastructure to pursue population health, rolling it out in stages across the system. Build clusters of hospitals and integrated delivery networks in good markets. Team with others in markets where Pyramid is weaker. Use organizational scale to develop special relationships with payers and others. Pyramid is prepared to offer equity or dollars (e.g., via a national consulting contract) to meet its needs for expertise and infrastructure. It also can work with a combination of acquirees and collaborators in each market, as appropriate. I’d suggest adding a paragraph here to explain in more detail the purpose of the national agreement described in the table below, and how it complements regional efforts to develop population health capabilities and expertise. Pyramid leaders meet with several highly regarded potential partners that they believe will help their local hospitals and integrated care networks to evolve into successful population health managers. All of this information helps Pyramid leaders to tailor and refine its options by market. The table below shows how these options vary depending on local and regional market characteristics and differing organizational needs by region: Figure 7. Pyramid Health’s Approaches by Market Market A Market B Market C Market D (Growth Market) (Weak Market Position) (Advanced Market Position) (National Agreements) Pyramid owns two hospitals, offers to acquire a third, and has plans to build a fourth. Regional systems (HR, legal, finance, …) serve all regional hospitals and physician networks. Shared regional contracts bring pre-and post-hospital care. Pyramid is a lesser player in this market. Pyramid’s hospitals and CIN join a larger system’s hospitals and CIN to form a large enough organization (a joint CIN) to compete for population health contracts and to create a recognizable brand. Pyramid’s local network is advanced and ready for population health. So is this marketplace. Pyramid, its affiliated physicians, a major insurer and a major player (need to clarify) develop a capitated agreement (with corridors to protect all parties in the event of a bad year.) Pyramid also develops national agreements with two population health organizations and with a post-acute option. These are rolled out to Pyramid care networks based on readiness/need. By utilizing different approaches to consolidation in different markets, Pyramid leaders effectively layer highly situation-specific approaches to regional economies and population health options on top of standardized systems that achieve national scale economies. (Note: I find this a little confusing as both the national contract and regional deals focus on population health. I think we need to explain how these national versus regional PHM contracts work together. )
Acquisition/Affiliation – Scenario 2
Star Medical Center, an academic medical center, asks, “What is a sustainable model for the future?” Assessing the Situation Star Medical Center is an academic medical center (AMC) prominent in the region it serves. It is sizeable, with 800 inpatient beds. It is in a contractual arrangement with the medical school, which has 500 clinical faculty. The faculty and research activities of the combined organization are highly regarded, and, like many AMCs, Star enjoys a positive market brand. Star operates in a highly competitive provider marketplace. These competitors are actively pursuing the types of capabilities required to be successful under value-based reimbursement. A key competitor is a financially aligned integrated system that already has the expertise and infrastructure for population health management. The commercial payer market is fragmented, with no one insurance carrier dominating the market. Commercial payers continue to offer attractive rates of reimbursement, particularly to academics. Two payers in particular are actively collaborating with providers, including on value-based reimbursement experiments. To date, Star has not engaged in these types of payment experiments. Although it is not significantly involved with value-based payment yet, Star Medical Center has invested over the last three years in capabilities required for care management at the population level. It has also invested in an excellent information technology platform, including significant interoperability capabilities with its broad base of network physicians. Given these particular organization and marketplace characteristics, leaders at Star Medical Center have prioritized the following needs: Secure closer relationships with a broad base of primary care Insure that Star is a leader in moving to population health Navigate carefully the financial transition from fee-for-service to value-based reimbursement Unlike some academic medical centers, Star is fortunate that it is not constrained by financial limitations, or by a dominant competitor or hostile payer. Further, Star benefits from having a leadership team that is unified in its vision for the organization. Both Star’s leadership team and board members understood that a variety of consolidation options could help the organization best meet its prioritized needs. Evaluating Options Because it functions in a highly competitive provider marketplace, Star has an unusually wide range of options available, including different forms of mergers and other forms of consolidation. Early investigation suggests that other large systems in the region have similar needs and are willing to collaborate. Large systems outside of the region might also be potential partners. Some area community hospitals are attractive as acquisitions. While Star is fortunate to have so many options available, its early analysis also suggests that these potential partners are eager to move forward, and they may not wait for Star if the organization takes too long to decide how to proceed. In other words, time is not on Star’s side. Some potential partners may act without Star. Star’s early investigation reveals the following viable options: Merge the community hospital systems into Star to create a regional network, and tighter linkages to community primary care physicians. This arrangement provides the additional potential benefit of tying strong community specialists into the academic medical center. Merge with other large non-academic organizations in the region. Merge with like-minded organizations outside of the region. Lead a collaborative organization that has the potential for achieving substantial economies of scale and pushing toward population health. Star leaders also envision the possibility of a collaborative alliance that ultimately extends outside the region. Star leaders realize that they need to consider acting in several directions at once. Each option requires its own detailed assessment. The merger evaluation process consists of the following key steps: Send a letter of interest to all potential partners and await responses. In these correspondences, Star details the type of consolidation option it envisions. These details are further refined in collaboration with potential partners. After data exchanges and site visits, the two regional systems and two of the for-profit systems submit detailed proposals. The field is narrowed. Presentations and follow-up questioning occurs. The process for evaluating options for collaboration is different than that for assessing merger opportunities. Star Medical leaders work with potential partners to detail each collaboration option. Part of this effort involved discussing a collaborative that extended outside the region. Star leaders believe that this particular option offers major cost savings potential plus the advantage of rapidly accelerating skills necessary for population health management. However, this particular collaborative model also presented some unique challenges. Can we add more detail? Ultimately, executives at Star recognize that they lack the bandwidth for this type of model at this time, so it is removed from consideration as a consolidation option. These evaluations (e.g., acquiring a hospital and joining a collaborative) lead to important decisions. Specifically, Star aims to simultaneously merge selected community systems into its corporation, as well as lead a broad regional collaborative in pursuing population health. First, Star Medical Center decides to acquire Circle Community Hospital. Circle Community Hospital is highly motivated to be acquired. It historically has operated at breakeven. Circle needs to be part of Star in order to have financial strength and borrowing capacity to make needed strategic investments. Star Medical Center leadership’s assessment is that the acquisition will be accretive; that is, it will generate cost savings and has potential for revenue gains. Circle Community was expected to begin a major IT upgrade. By merging with Star Medical Center, the expected IT costs will be 20% of the estimate on an independent basis. Further, this addition makes sense geographically. A 5% increase in referrals to Star’s faculty practice is anticipated from the merger with Circle. Community, physician and rating agency reactions to the proposed merger are favorable. Figure 3. Factors to Consider When Acquiring a Community Hospital Is the transaction accretive? (Are the cost savings – including reduction in central management, IT, facilities operations, re-purposed facilities, and other economies – plus any revenue gains sufficient to create a net gain?) Is this a geographically attractive addition? (Demographics, growth potential, payer mix, and other factors are considered.) Does the management team add to the combined system talent? (Alternatively, must part of the team be re-trained or replaced? What are the physician groups’ strengths and weaknesses? (Employed model characteristics, physician demographics, quality, interest in collaboration, attitudes towards the proposed merger, independent practices’ loyalty, …) Are there important cultural differences with other community hospitals merged into the system (existing or anticipated)? Ease or difficulty in reducing system leakage (keeping more patients in the system) Other factors (e.g., strong board members or donors, special community needs or attitudes, resistance to giving necessary governance powers to the fiduciary board, …) Source: McManis Consulting Despite the positive aspects of this acquisition, Star Medical Center leaders recognize they will need to be thoughtful to ensure that the gains envisioned are realized. The figure below describes some of the unintended consequences experienced by health care organizations that have embarked on similar arrangements. Figure 4. Potential Frustrations from Mergers among Health Care Providers Cultural alignment proves more difficult than expected. Physician groups are unable to come together and perform well under value-based payment. Regulatory concerns delay, alter or jettison the merger. Physicians are not sufficiently aligned with the system. Despite due diligence, one of the combined organizations performs well below expectations. Management teams do not perform well together – members of one or both teams need to be changed out. Expected savings from scale economies are less than expected. Leakage of cases outside of the system is greater than expected, leading to higher costs of care. Boards chafe at new roles. Tensions continue for several years and limit performance. Key players leave. Source: McManis Consulting Star is also entering negotiations to form Square Health Collaborative, along with five other health systems. Square Health will be organized as a clinically integrated network (CIN). Two prominent health plans have already expressed support for the creation of the CIN. Here too, rating agency reaction is favorable. Star Medical Center leaders understand that, in general, collaboratives are a newly emerging structure in health care, with potential advantages and disadvantages. Figure 5. Potential Advantages and Disadvantages/Challenges of Strategic Affiliations Potential Advantages Potential Disadvantages/Challenges Pathway to achieving economies of scale without giving up total autonomy May not address critical capital needs Can serve as a means of accessing resources that may be difficult for smaller hospitals to acquire and own on their own (EHRs, clinical protocols, administrative and clinical expertise) Could lead to a growing dependence on a larger and more powerful institution (de-facto change in control w/out corresponding capital benefit) Can create opportunities for participating in value-based payment models (ACOs – commercial and MSSP, bundled payments, …) Collaboration may require capital, infrastructure and human resources from all parties Easier to unwind (which may be beneficial in anti-trust analysis) Legal considerations include anti-trust, fraud and abuse and tax exemption Source: Doug Hastings, Epstein Becker Given its high strategic priority, the CEO of Star Medical Center directly participates in the negotiations related to establishing the governance structure of the collaborative, as do the CEOs of the other participants. All parties agree to make capital contributions to start up the collaborative, and agree to recruit initial staff rather than try to resource with existing personnel. The collaborative participants agree to focus narrowly on the creation of the CIN and the population health infrastructure required for it to be effective. A common goal is to establish value-based contracts within a year from inception of the collaborative. The CEOs agree to hold committee chair positions for a year, to ensure that the initiative continues to have high level engagement, and to help foster trust among the participants. Figure 6. Factors to Consider in Organizing a Collaborative Among Health Systems What “glue” is expected to hold the collaborative together? (Relationships between CEOs, good geographical combination, a common enemy, a common vision, ...?) Why is it reasonable to expect this group of systems to be able to generate substantial value added? (Standard system-wide economies, a good combined region for joint population health management, specialized talents in aspects of value-based care and reimbursement, similar IT platforms or care approaches, …?) What are the initial areas of focus? (CIN, supply chain, joint learning between physician groups, …?) Is the initial capitalization sufficient? What is the commitment? (How easy to get out? Is there a commitment term?) Are CEOs and key board members involved? What is the quality and commitment of the leadership core collaborative staff? What is their level of informal influence within the member organizations? What is the initiative’s approval (and monitoring) process? Source: McManis Consulting