When we speak with community hospital executives, they feel like they’re facing a stacked deck. As you may have read in our last post on community hospitals, these organizations typically face more price-sensitive consumers, more competitors (e.g., retail and urgent care clinics), and more dollars at risk than they did just a few years ago. They’re combating these forces by engaging in mergers and acquisitions, as well as by forming non-M&A partnerships with other community hospitals and larger health systems—often academic medical centers (AMCs).
But this growing number of community hospital affiliations can make suppliers and service providers uneasy, as many vendors assume such partnerships will force the smaller facilities to surrender their existing relationships in favor of their new, larger partners’ preferred suppliers. While full-scale mergers do often upend purchasing dynamics, the kinds of partnerships we’re seeing are typically less disruptive to incumbent vendor relationships and, in fact, may create new opportunities for growth.
To learn more about these community hospital partnerships, I recently spoke with Leif Brierley, Senior Analyst with the Advisory Board’s Community Hospital Initiative. He pointed out that the old adage rings true: if you’ve seen one affiliation, you’ve seen one affiliation. Community hospitals partner with other organizations in numerous ways--still, we’re seeing providers gravitate towards three models in particular. And each one presents potential threats and opportunities for the suppliers and services firms supporting those organizations.
Common community hospital partnership models
The active parent model: The community hospital affiliates with an AMC and agrees to follow some of its clinical and/or operational practice standards. In some cases, it absorbs new administrative leaders from the ‘parent’ AMC to ensure appropriate institutional alignment. Essentially, the community hospital becomes a “mini-me” of the AMC.
- The tenant model: The community hospital leases one or more inpatient floors to an AMC, whose specialists run those units as they see fit; in doing so, the community hospital largely maintains its independence but benefits from access to the AMC’s brand and specialty practices.
- The alliance model: The community hospitals band together to leverage advantages of scale without giving up local control or “selling out” to a larger system. They may invest in shared services such as population health infrastructure, collaborate with payers to grow their market share, or share best practices to reduce care variation. This model is most common in markets that are experiencing significant M&A and/or are dominated by one or more large health system.
The challenges of partnership
Building and sustaining these partnerships is hard work, and community hospitals choosing this path are likely going to experience some bumps along the way, regardless of the model they choose to enter. As Leif explained to me, community hospitals and their partners must work through a range of operational, cultural, and political challenges. As they do so, some community hospital leaders may become distracted, putting existing relationships on hold. They may also look for trusted advisors or neutral third-party organizations to help bridge gaps between themselves and their new partners.
If you work with an affiliated community hospital, your awareness of both these challenges and providers’ responses to them may help you identify and pre-empt relationship risks—as well as potential service expansion opportunities.
You just learned about a new partnership. Now what?
First, when you hear that one of your community hospital customers has entered into a new affiliation, don’t assume that their supplier relationships and purchasing priorities will automatically be subsumed by the more dominant partner. Affiliations are nuanced, and they are not necessarily followed by blanket shifts in purchasing patterns, or even in patient care.
Second, it behooves you to invest the time in learning about why the community hospital entered into the arrangement, what aspects of its business will likely change, and how its leaders are defining success and mitigating challenges. The answers to these questions can often help you realistically assess any potential relationship threats and possibly identify new ways you can help those community hospital customers achieve their partnership goals.