Wednesday, November 14, 2007

The Role of Partnerships in Health Care Systems

Last week, CHRISTUS Health announced that we have signed a non-binding letter of intent to form a partnership with St. Vincent Regional Medical Center, the largest provider of health care in Santa Fe, N.M. It is our hope that as a result of due diligence, which is presently being performed, that the partnership agreement and the transition to CHRISTUS leadership and management can occur on or before Feb. 1, 2008. For the readers of this blog, this report should probably elicit the following questions: 1.Why would St. Vincent regional medical center want or need a partner? 2.Why would CHRISTUS Health want to enter a new market? 3.Are partnerships rather than total ownership a viable option for expanding health care in the future?

In addressing these questions, let us begin by briefly reviewing an article published in Trustee magazine in September of 2007 entitled, “Standing Alone: Assessing a Hospital’s Long-Term Viability”. This article begins with the statement, “The trend of the past decade is clear: Hospital-health system affiliations are up, and the number of independent community hospitals is down. In 2005, 55 percent of hospitals were part of health systems, up from 46 percent just five years earlier.”

This article continues to indicate that stand-alone hospitals may be challenged because of economic changes occurring in their markets, stronger competitors competing in their markets and, therefore, the challenge of generating sufficient operational margins to support their capital needs. In prior blog posts, we discussed that from our future planning, we learned that declining reimbursement and the need for new, non-invasive technology would be the drivers of the health care of the future. Both of these trends require a new approach to obtaining capital funds. It is this knowledge and understanding that drove the St. Vincent Regional Medical Center board and its leadership to contemplate the need for a partner at a time when they are the sole community provider and are fiscally sound. Their timing is critical, for many stand-alone hospitals wait far too long to review a potentially innovative and new strategic direction, and consequently are often facing significant cash-flow challenges approaching bankruptcy levels. In this wounded state, it is much more difficult to find a viable partner or a workable strategy. Such was the case reported recently with a hospital in New Jersey that has been unsuccessful in obtaining a partner after a two-year search, and have reported that their doors will be closed before the holiday season.

So specifically, St. Vincent Regional Medical Center decided that they needed a partner to ensure that access to appropriate capital would be available in the future, but they also agreed that being part of a larger system would give them exposure to best leadership and management practices and also best practices in regards to quality, service and community health delivery.

By utilizing that criteria, St. Vincent did a national search and determined that CHRISTUS Health was its best partner opportunity. Because the management expertise in CHRISTUS was also deemed as a positive contribution to the partnership, St. Vincent has agreed to sign a management contract with CHRISTUS so that their leadership team will in fact become CHRISTUS Associates and fall under CHRISTUS management.

Once the partnership agreement is signed, I will highlight more specifically our other partnership characteristics in a future blog post to give you a better understanding of one workable model for a partnership in American health care. We will also discuss at that time other partnerships which CHRISTUS has undertaken and do a contrast and comparison of those models along with the full ownership model, which is how we predominately operate throughout our system.

With regard to what’s in it for CHRISTUS, in our strategic planning process over the last 8-and-a-half-years, we have determined that to be an excellent organization, we need to be growing and expanding our ministry through a number of models, not solely through acquisitions. Therefore, we formed a partnership with Baptist St. Anthony’s Health System in Amarillo, Texas in 1998. We followed this with the Mexico partnership with the Muguerza health system in 2000, and hence began a formal partnership journey within our system. To eliminate the need to examine each partnership independently, we developed guidelines for such partnerships as a result of our decision to expand our portfolio to become one-third acute care, one-third non-acute care and one-third international.

For our acute care ventures in the U.S., we have indicated that we will only partner with organizations having the following characteristics:
1. Similar mission, vision and values;
2. Located in organically growing communities (i.e., new populations are entering the community);
3. Surrounded by geographical areas which are in need of expanded health care;
4. Located outside of our present markets, many of which are in the hurricane belt and
5. Markets which have stronger business literacy so that we might have more resources to care for the growing uninsured.
With these criteria in mind, we answered the invitation to begin discussions with St. Vincent, which as indicated, ended in CHRISTUS being chosen as their preferred partner.

With regard to the final question, partnership vs. ownership, regardless of the financial viability of any organization in health care, capital requests and appetites always exceed capital capabilities. Therefore, partnerships permit an organization to expand its ministry--particularly if it provides high-quality care--to new areas while not being required to provide all of the capital itself. So growth with less capital is possible. Hence, introducing partnerships into your expansion portfolio seems appropriate, provided that at the end of the day, your partners look as much like you as possible.

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