Ac­qui­si­tions and af­fil­i­a­tions: How the new wave is dif­fer­ent

Modern Healthcare - - COMMENT - By Joseph J. Fifer

The health­care in­dus­try is ex­pe­ri­enc­ing a seis­mic shift as hos­pi­tals and health sys­tems re­align. The de­mands of to­day’s health­care mar­ket­place are spurring a new wave of ac­qui­si­tions and af­fil­i­a­tions among health­care or­ga­ni­za­tions. How­ever, as con­sol­i­da­tion ramps up, so does the de­bate about the mer­its of these merg­ers.

As a spot­light continues to shine on health­care prices, spec­u­la­tion about links be­tween mar­ket con­sol­i­da­tion and prices abounds. Some fear that con­sol­i­da­tion will cre­ate higher prices for con­sumers and re­sult in less au­ton­omy for physi­cians. They ex­press con­cern that the health­care land­scape could be­come an­ti­thet­i­cal to healthy com­pe­ti­tion.

Oth­ers make the case that large, in­te­grated providers will be able to of­fer higher-qual­ity ser­vices, bet­ter co­or­di­nate care, re­duce un­nec­es­sary du­pli­ca­tion of ser­vices and cut costs. Pro­po­nents say that re­align­ment will bring about bet­ter qual­ity of care at lower prices.

One thing is clear: Providers who would pur­sue con­sol­i­da­tion to gain mar­ket power and force higher pay­ment rates—in an en­vi­ron­ment where price trans­parency ex­pec­ta­tions are grow­ing by the day—are set­ting them­selves up for fail­ure. So far, re­search on the ef­fects of con­sol­i­da­tion on prices has been limited and in­con­clu­sive. The ul­ti­mate im­pact of the move­ment to­ward scale re­mains to be seen.

Not sur­pris­ingly, the in­dus­try is not wait­ing for re­search re­sults. The mar­ket forces that drive con­sol­i­da­tion are on­go­ing. The good news is that many provider or­ga­ni­za­tions are af­fil­i­at­ing for the right rea­sons, as we dis­cov­ered in a se­ries of in­ter­views with in­dus­try ex­perts and provider or­ga­ni­za­tions that are ac­tively pur­su­ing such strate­gies.

The ex­perts we in­ter­viewed iden­ti­fied—and the providers ex­em­pli­fied—a trend to­ward value-fo­cused ac­qui­si­tion and af­fil­i­a­tion strate­gies. These part­ner­ships are de­signed to im­prove the qual­ity or cost-ef­fec­tive­ness of care. They have the po­ten­tial to deliver greater value to care pur­chasers. The or­ga­ni­za­tion’s mar­ket share is still likely to im­prove—not be­cause the newly larger en­tity is flex­ing its pric­ing mus­cle—but be­cause it can demon­strate a su­pe­rior value propo­si­tion. Such merg­ers stand a good chance of be­ing well-re­ceived by the com­mu­nity and pass­ing muster with an­titrust reg­u­la­tors, who look for pro-com­pet­i­tive ef­fects that out­weigh any an­ti­com­pet­i­tive ef­fects that could arise from in­creased size.

Value-fo­cused af­fil­i­a­tions have dis­tinc­tive char­ac­ter­is­tics. Of­ten, they take place be­tween fi­nan­cial equals. Fur­ther­more, they are typ­i­cally not driven by a quest for adding acute in­pa­tient ca­pac­ity. As a re­sult, other as­sets a hos­pi­tal­based sys­tem can bring—such as af­fil­i­ated physi­cian net­works, out­pa­tient clin­ics, or a fa­vor­able mar­ket po­si­tion and payer mix—might be equally or more im­por­tant than the hospi­tal it­self. In this equa­tion, fi­nan­cially trou­bled hos­pi­tals are be­com­ing less at­trac­tive ac­qui­si­tion tar­gets.

Health­care Fi­nan­cial Man­age­ment As­so­ci­a­tion re­search has iden­ti­fied five key driv­ers of ac­qui­si­tion and af­fil­i­a­tion strate­gies to­day:

Im­prov­ing op­er­a­tional ef­fi­cien­cies. For ex­am­ple, the for­ma­tion of Al­lSpire Health Part­ners, a col­lab­o­ra­tive part­ner­ship rep­re­sent­ing 25 hos­pi­tals in New Jersey and Penn­syl­va­nia, came out of early dis­cus­sions among CEOs of par­tic­i­pat­ing sys­tems, each seek­ing a way to achieve economies of scale, yet re­main in­de­pen­dent.

Cre­at­ing clin­i­cally in­te­grated care de­liv­ery net­works. The ob­jec­tive in this case is to deliver con­ve­nient ac­cess to high-qual­ity ser­vices at a com­pet­i­tive price, a pack­age that can be mar­keted to health plans, em­ploy­ers and con­sumers.

Ac­cess­ing suf­fi­cient pop­u­la­tions for pop­u­la­tion health man­age­ment. Al­though it is still un­clear what pop­u­la­tion size is needed, in most in­stances more is bet­ter.

De­vel­op­ing new ca­pa­bil­i­ties. There are times when buy­ing or­ga­ni­za­tional ca­pa­bil­i­ties is more ef­fi­cient than de­vel­op­ing them in-house.

Ra­tio­nal­iz­ing ser­vice lines or as­sets. The “right care at the right time in the right place” has be­come a new mantra. Putting that into prac­tice will re­quire co­or­di­na­tion to “right-size” the sys­tem in a way that main­tains af­ford­able ac­cess to care.

Clearly, the driv­ers of value-fo­cused af­fil­i­a­tions and ac­qui­si­tions are di­verse. In re­sponse, a wide range of ac­qui­si­tion and af­fil­i­a­tion mod­els have emerged. Few doubt that the forces trans­form­ing health­care to­day will lead to fur­ther con­sol­i­da­tion within the in­dus­try.

There is a sig­nif­i­cant dif­fer­ence, how­ever, be­tween con­sol­i­da­tion that seeks only an in­crease in mar­ket power and an ac­qui­si­tion and af­fil­i­a­tion strat­egy that seeks part­ners able to im­prove value to care pur­chasers.

It sim­ply isn’t in a provider’s longterm in­ter­ests to mis­use scale by pric­ing or repric­ing ser­vices to the detri­ment of the com­mu­ni­ties it serves. In the end, or­ga­ni­za­tions that base their ac­qui­si­tion and af­fil­i­a­tion strate­gies on com­mon sense, good judg­ment and value im­prove­ment—from a care pur­chaser’s per­spec­tive—should pre­vail.

Joseph J. Fifer is pres­i­dent and CEO of the Health­care Fi­nan­cial Man­age­ment As­so­ci­a­tion.

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