Sg2 Letter: Partnerships: The New Path to Consolidation and Scale
Rumors and announcements of health plan mergers and acquisitions have only accelerated discussions among health system executives about how much more provider consolidation is likely to occur over the next few years. My colleagues and I are routinely asked, “Sg2, how many US health systems will there be by 2020—50, 100, 200?” To be sure, Sg2 views consolidation, along with consumerism, convergence, and cohesion, as one of the major drivers of market evolution. Still, we encourage you to broaden your thinking about what consolidation means. Rather than focusing on how many lumbering mega systems will dot the landscape, we encourage you to focus on the future of strategic partnerships.
Earlier this year, we spoke with a strategy executive for a large West Coast health system. He described how his organization had hit the proverbial fork in the road and was now redefining its local and regional identity. Over the past few years, the system had started to transform its reputation from an inflexible, traditional, bureaucratic, hospital-based organization into an innovative collaborator that actively seeks partners for growth and market expansion. In fact, the system has the stated goal of launching a new strategic partnership each month. At your next senior team retreat, it might be worth asking what it would mean to your organization to launch a new partnership every month.
Let’s pause here for a definition. By partnership, we refer to any number of different types of relationships that you may structure with a health plan, another health system, a post-acute care network, a virtual health vendor, a physician group, an IT company, a retail clinic or any number of new market entrants. The scope of the definition is important because it starts to redefine what large and (yes) small independent health systems will become over the next 5 to 10 years and what it will take to run them successfully.
As you assess and refine your approach to partnerships, we offer these recommendations and words of wisdom from other Sg2 members.
- Start with a current state assessment. What partnerships do you have today? How well are they working? Are you an organization with which others would want to partner? What gaps exist across your System of CARE? What additional partnerships would help you grow and deliver superior health care?
- Have an honest discussion about what adding more partnerships will mean for your organization. As one CEO told us, “The problem with partnerships is that they are partnerships. We’ve had to become comfortable with giving up control of everything that we do. That was a much larger cultural shift than we realized.”
- Lay out a game plan in different strategic areas. As your system evolves, you are likely to develop relationships with clinical partners, new business ventures, IT and infrastructure alliances, academic relationships, virtual health partnerships and traditional joint ventures with physicians. In today’s market you also will likely pursue new types of relationships with employers, payers, independent physicians and nontraditional primary care providers.
- Develop an approach for implementing these relationships. Often that means deciding who (or what part of your organization) will lead partnership development and who will manage the relationships on an ongoing basis. At a recent Sg2 Executive Summit, one CEO told the audience that he now considered his job to be that of Chief Partnership Officer. Many executives have also told us that they have had to develop a new philosophy on governance that is far more flexible than what it had been historically.
- Think beyond traditional geographic boundaries. It is very likely that you will be running or participating in partnerships at the local, regional, state and even national level. This is one more factor that should encourage you to update your longstanding views of primary and secondary service areas.
- Be smart about how you enter and exit strategic relationships and how partnerships may add new members over time. For example, one system CEO told us that he was entering a narrow network partnership with a commercial payer. While he had to give some ground on reimbursement rates, he was able to negotiate the right to decide which additional providers may or may not be allowed to join the network over time.
- Aim for consistency of metrics. One way to escape the “metric nightmare” that many Sg2 members bemoan is to embed the same clinical and financial metrics in your clinical partnerships and contracting partnerships.
- Sweat the details before you launch the relationship. While due diligence and legal small print can be important, don’t overlook the value in spending time on “what if” scenarios: How would we make a decision if this happens? How exactly will patients move through the delivery system? What role will our clinical leaders play day-to-day?
- Don’t forget about forming partnerships with community service organizations. Sg2 members who have taken initial steps on the journey toward population health remind us how important it is to participate in areas such as transportation, nutrition services, behavioral health, etc.
- Get ready for management complexity. The good old days of simply sticking hospital balance sheets together are starting to fade into the background. Becoming both a high-functioning partnership organizer and/or a trusted partner will challenge your approaches to organizational structure and day-to-day management.
We expect Sg2 members’ interest in partnership development to accelerate over the next 12 to 18 months. We also expect more consolidation announcements across the health care industry this fall. This will be an important area of focus for Sg2 in 2016. If you have examples of new partnership models that you would like to share with us or are interested in guidance on your own partnership strategy, please reach out—we’re happy to partner with you on this journey.