Healthcare providers continue to build interconnected healthcare delivery systems to improve patient care and reduce costs. Central to building these delivery systems are affiliations—through an acquisition, joint venture, physician alignment, or professional services agreement. We routinely see news headlines of affiliations: a community hospital is affiliating with a large academic medical center, or a group of physicians is aligning with a large hospital system, or one hospital is acquiring another.
All of these affiliations offer the promise of better patient care, decreased costs, and the chance for long-term success and stability. However, many affiliations fail to fully realize their potential when it comes to intended financial and patient care objectives. Market forces, such as healthcare legislation and increasing reliance on shrinking Medicare reimbursements, continue to increase the pressure to rapidly capture larger patient populations and realize the cost benefits of an affiliation. If an affiliation is on your horizon, how can you implement with the speed necessary to ensure strategic success?
The success of any affiliation is achieved through optimally implementing each lifecycle stage of the affiliation—from the initial relationship development stage to integrating and optimizing the operation. These stages are generally defined as:
- Target development—identifying and developing targets for affiliation.
- Affiliation development—developing relationships and creating legal alignment.
- Pre-operations transition—preparing organizations, as needed, for transition into a larger network. This stage includes activities such as building or remodeling facilities.
- Integrations and operations optimization—a multiphased stage that includes integrating affiliations into a larger network, achieving financial goals, providing patients access to high-quality care and engaging physicians and employees to deliver effectively.
In our experience helping many organizations affiliate, we assert that leaders often underestimate the importance of stages 3 and 4, the pre-operations transition and the integration and operations optimization stages. However, these stages prove crucial to the success of the affiliation and are where organizations realize the value and synergies of the relationship. The majority of organizations don’t spend sufficient energy defining what the success of the affiliation looks like in stages 3 and 4, nor do they sufficiently plan for or monitor the actual implementation of these stages. This is particularly true in physician practice affiliations where the inking of the deal is often viewed as “the end of the project.” As a result, affiliations frequently underperform on a number of measures including financial, quality of care, physician engagement, and patient experience.
Improving the execution of these final stages reduces the cycle time an affiliation takes to generate value for both patient and organizational sustainability. This is known as time-to-value.
Here, we offer a pragmatic framework for improving time-tovalue and ultimately achieving the goals set forth in the original affiliation plan.
1. Include key players early on
Transition and operations optimization will happen more quickly and have better outcomes if they are considered and planned for prior to legal close. If at all possible, your longterm operations leader, as well as key physicians and staff who will be in charge of pre-operations integration and operations phases, should be included in due diligence, or some planning phase prior to a definitive legal agreement.
In the case of physician practices affiliating with hospital systems, it is a good idea to discuss and involve those who can help set the vision and plan for how the organizations will work together.
2. Define the top-level strategy, objectives and priorities ahead of time
Developing a shared vision at the executive level on strategic affiliation objectives and standards—and what success looks like—frames the big picture for the organization and helps everyone define and execute their responsibilities in a consistent, coordinated fashion without excessive delays. The shared vision should encompass how your affiliation strategy enables your overall long-term strategy. It also should describe how the affiliation fits into your overall corporate structure and culture. For example, if you are successful, what will the patient experience be like? How will you coordinate care? How will you manage your revenue cycle? What will your business and back office operations look like? And most importantly, how do you define and measure value in the context of why you affiliated in the first place?
Although affiliation value can be measured a number of ways, the overriding measures of value are typically financially based. That is, did the affiliation achieve pro forma objectives in terms of profitability and Return on Investment (ROI). We recommend that your organization also choose other drivers of value so that you get a complete picture. Potential drivers include share of patient population served, operational efficiencies, improved patient experience, and increased engagement for physicians and staff.
3. Plan for pre-operations transition and operations prior to legal close, and execute without delay
There’s no substitute for rigorous project management methodology to ensure that the transition goes smoothly and you are able to mitigate risks. Planning for pre-operations transition and operations prior to legal close ensures everyone is aligned around objectives, and ultimately this planning reduces delays. Each phase needs to be proactively planned and managed:
- Clearly define the value proposition for patients, the community, and your organization up front.
- Detail plans for Day 1 and create a timeline and plan for completing any pre-operations work to get to “open for business,” to make sure things get off to a quick start.
- Plan for Days 1-30, 60, 90 all the way through Day 365 of operations to increase the likelihood your goals will be acted upon and realized.
- Plan for capital and resource investments to make sure you don’t encounter unexpected surprises.
- Assess and plan for addressing culture clashes.
4. Manage new asset performance
Managing your new asset performance is achieved by aligning leadership and by staying involved. Select your longterm operations leader early, engage them in pre-close planning if at all possible, and align and incent them to deliver. Align holistically on the business plan and performance expectations. Assign roles and get specific about who is in charge of what. Additionally, identify the key departments and stakeholders who need to be involved in the project. Get them involved in developing plans early, ideally pre-close. Define their roles in both implementation and oversight.
Stakeholders typically include the following departments:
- HR, IT, finance, and legal
- Supply chain operations, pharmacy, and contracts including payors
- Business and back office operations, such as coding, billing, and collections
- Project managers and those involved in strategic planning and process optimization
- Recruiting and business development
- Clinical staff
Bring these stakeholders together with the long-term operations leadership to form a multidisciplinary project team that will manage the project. Define objectives, develop specific integration plans, track and manage status, and collectively review progress. This team should routinely review what success looks like and develop time-based milestones. You should also consider creating a chartered oversight team.
If you have sufficient volume of affiliations upcoming, consider formalizing an Integration team to plan and execute on these types of ventures, and consider developing standard tools, timelines and checklists to make the process faster, less expensive and less prone to error.
5. Measure and evaluate affiliations over 3-5 years
Keeping track of asset performance drives better decision making in the first year of operations and in the years following. Measurement should be referenced against the original goals. Plans should be proactively adjusted as conditions/information shifts. This may require more aggressive cost cutting or top line growth. Measure actual ROI against pro forma ROI to help drive decision making, such as determining if you are on track, if you need to take additional action to achieve goals, or if you need to take the drastic measure of divesting.
The Bottom Line
The era of taking years to integrate an affiliation is coming to a close in healthcare. How well time-to-value goals are accomplished is highly correlated to planning, cycle time, and how well you execute on your plan. Benjamin Franklin said it best when he said “Remember that time is money.” Financial goals – and all other goals – are optimized when affiliations are implemented with speed and precision.