M&A Strategies for Small Hospitals

Philip Betbeze, for HealthLeaders Media , December 18, 2012

"I'm not worried about all the patients going to the mother ship," says Reynolds of MidMichigan. "We send a fair amount of business to them anyway. In fact, their problem is they are trying to push business back to local organizations because they have more than they can deal with. For example, they would like to keep more cancer business up here and expand our expertise."

Smaller hospitals often can treat patients at lower cost, too, a fact not lost on Reynolds. He hopes to improve his system's already strong financial profile through the affiliation with UM.

"This was opportunistic. I was looking to gain competitive advantage. Certainly the market is moving so we wouldn't have waited forever to do it, but we have 300 days cash on hand," he says. "This is not a move made out of desperation."

Typical of such agreements, both MidMichigan and LERHSNY have joint operating committees with their bigger partners that meet on a regular basis on projects they have agreed to at a higher executive level, but they maintain local board control.

"If the 'mother ship' sees the smaller affiliate as a way to suck volume out of the community, the relationship is doomed from the start," Lawrence says. "The only way the smaller entity will survive and the way the larger one will gain support is by demonstrating that patients can be kept locally and making sure that the smaller entity has the resources necessary to accomplish that."

Dartmouth-Hitchcock's Meyer is looking into other innovative partnerships locally: for instance, with retail clinics that are springing up. For some people, such clinics are their only point of contact in healthcare. By developing a partnership, Meyer thinks Dartmouth-Hitchcock can develop an opportunity where patients will come in with their sore throat, and the clinic will recognize that patient has no medical home. Their blood sugar may be out of control, for example—something for which the retail clinic is poorly equipped to treat, but for which Dartmouth-Hitchcock has many resources.

"What's changing is the conditions and drivers are very different," he says. "Finance people used to get behind closed doors to see if a partnership made financial sense. In accountable care, and taking risk for large populations, health systems are looking at things from a different lens. Clinicians will decide whether an intervention is going to improve access to the population we ought to be serving, and whether it will improve value and leverage new population risk reimbursement models."

Meyer says the pace of deals will only get more frenetic before it levels off.

"I've been involved in healthcare for about three decades," he says. "Partnerships that in the past took months to evaluate and consummate are now moving along at much greater pace. In some ways a lot of things that have made sense for many years are now finally actually happening."

Philip Betbeze is senior leadership editor with HealthLeaders Media. He can be reached at pbetbeze@healthleadersmedia.com.

Reprint HLR1212-5

This article appears in the December 2012 issue of HealthLeaders magazine.

Philip Betbeze is senior leadership editor with HealthLeaders Media.
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