This article appears in the October 2011 issue of HealthLeaders magazine.
Federal regulations, especially surrounding accountable care organizations, get plenty of attention these days. But many in the industry are wary about what CMS has in store, and those looking to develop commercial models recognize that a full-scale ACO could be years away. There’s an intermediate step for most organizations that is a prerequisite to ACO creation. In fact, in the HealthLeaders Media Intelligence Report, The Leap to Accountable Care Organizations, while 64% of leaders surveyed say they are planning to implement an ACO structure in the future, about half (52%) have not set a date for when it would be operational. The others (48%) expect that to come within the next three years.
In the meantime, many hospitals and health systems are working on a necessary prelude to ACO creation: scale. They’re doing it in a variety of ways—from mergers with former competitors to joint operating agreements with similar organizations in different markets to bundles of small acquisitions—as is evident in the constant stream of headlines detailing the latest acquisition or joint operating agreement struck between formerly independent entities. Not only could such agreements pave the way for ACOs, but they arguably allow the new entities to save by reducing duplicative services and by reaping additional economies of scale.
Three recent deals that increase scale deserve attention in that they are all a little different, yet seek to achieve the same stated goal: better, more coordinated patient care at a lower cost. You may not hear it from the participants themselves, but market share increases are a seldom-mentioned side benefit.
Their relationship began in Danville, VA, at a small hospital in the southern part of the state: Danville Regional Medical Center, where Duke University Health System was working jointly with the hospital leaders to develop a program focused on cardiac diseases. Danville Regional, one of a network of regional referral hospitals for Duke, is owned by Brentwood, TN–based LifePoint Hospitals, which owns more than 50 hospitals around the country.
If that relationship was a peashooter, what blossomed afterward was a cannon shot. Together, they formed DLP Healthcare LLC, a holding company jointly operated by the two that is aimed at doing acquisitions, long-term leases, and joint ventures with community hospitals in North Carolina and, in the future, adjoining states.
The idea germinated when William J. Fulkerson Jr., MD, Duke University Health System’s executive vice president and a professor at Duke’s school of medicine, was fielding calls from regional partners about pressures they were beginning to see for independent hospitals around their performance, pressures in reimbursement, cost containment, and program development.
“Our core competency is not operational excellence in small hospitals in small communities,” Fulkerson says. “We don’t have the capability of local physician recruitment, but we can develop clinical programs that are appropriate in small communities and can extend affiliation to physicians there.”
To forge any bigger relationship than serving as a program affiliate or as a tertiary partner for referrals with small community hospitals, Fulkerson and Duke needed a partner that was expert at operations as well as quality and safety programs at such hospitals. That’s where LifePoint came in, he says.
“The secret to success is delivering the highest possible quality at a competitive cost,” he says. “If we can’t do both, we won’t be successful.”