Last month, Renton, Wash.-based Providence Health & Services and Seattle-based Swedish Health Services announced plans to form one of the most unique healthcare partnerships of the year. Under the proposed deal, each organization will keep its respective name and identity and will continue to operate separately. The 27 hospitals under Providence will keep their Catholic mission, while Swedish's five hospitals will remain non-religious. Donations made to the Swedish Foundation will only go to Swedish, donations made to Providence foundations will only go to Providence.
Swedish and Providence leaders said they had to think beyond the traditional merger or acquisition to strike this innovative arrangement. Here, Swedish Health Services President and CEO Rod Hochman, MD, and Providence Health Services Chief Operating Officer Mike Butler discuss trends in hospital M&A, explain what drew their organizations together and offer advice to hospital leaders considering partnerships.
Q: There are plenty of flavors of hospital transactions — mergers, joint ventures, clinical affiliations, acquisitions and more. Why did a partnership model appeal to you and your organizations the most?
Mike Butler: We chose an affiliation because we felt it appealed to both parties. Our organizations have been serving the Puget Sound area for more than 100 years, and we felt we needed to honor our [respective] heritages. An affiliation also met the needs of our key stakeholders, as well as the Archbishop. It allows us to achieve greater affordability and patient access. This was some of the rationale for an affiliation.
Dr. Rod Hochman: As Mike said, what we looked for is what would fit for both of us. We wanted to be able to manage the organizations together. From our standpoint, that was extremely important. We'll have one board for the organization, which will be combined with some of the Swedish board members. Whatever name you want to use, [the partnership] effectively allows [a] management [team] to run the organization under one team concept. [Note: The affiliation is still in the early stages of regulatory review and is not yet final. The systems have not yet finalized the partnership's proposed governance structure.]
Q: Under the proposed deal, Providence and Swedish will maintain their respective identities: Providence will remain Catholic, Swedish will keep its name and stay non-religious. That's pretty unique in the world of healthcare transactions. Can you explain how you at this strategic decision?
Dr. Hochman: I serve on the board at Catholic Healthcare West, so a lot of organizations are trying to look at how you [join] faith-based and non-faith based organizations and respect both identities. Over a year ago, we started considering structures that could respect the Catholic identity while respecting a non-religious relationship with Swedish. We think we came up it.
I think it provides a good opportunity for non-Catholic [hospitals] to join together in a well-integrated organization. There are lots of joint operating agreements, but [a partnership] allows them to come together for clinical care in a way that still respects the Catholic and non-Catholic nature of the institutions. As much as I've seen, [this is] groundbreaking.
Mr. Butler: We wanted to honor the heritage of both organizations. We've been in the state of Washington for more than 150 years, so we wanted to maintain our identity and maintain the Catholic identity on the Providence side. The affiliation will result in a combined vision through clinical and administrative best practices to improve access.
Q: In your opinion, are hospital partnerships today any different from 5, 10 years ago? If so, how?
Dr. Hochman: I think what we're seeing a whole new era of [consolidation]. We've got health insurers buying health systems. We're seeing for-profits and non-profits coming together, and private equity relationships with non-profits. There's a whole host of "less conventional" relationships than in the past. Now we're seeing a whole host of different types of arrangements indicative of the fact that, given where healthcare is going, people are seeing the need to partner, consolidate and form sophisticated arrangements.
Mr. Butler: There's more obligation today to find long-term solutions for the communities we serve. We felt like we needed to take a proactive approach to resolving this national crisis. That's what really stimulated this affiliation and moved it along. It's also important to work across communities. So, this was largely about meeting the national crisis and connecting communities. We could not afford to wait around for [the provisions of] reform.
Q: What would be the benefits of this partnership?
Dr. Hochman: We want to lead with clinical transformation. We don't believe we can [achieve] cost-effective care by traditional cost-cutting methods, like back office [cuts] or a few FTEs less here and there. That won't make it where we see healthcare going. The clinical enterprises are where we see opportunity. If we can reduce variation over scale, that's the way to reduce cost and really improve care. That's why we're doing this. That's the most important part of this partnership.
Mr. Butler: Improved access, quality and cost. We think we can save significant amounts annually through developing clinical best practices and reducing administrative expenses, such as consolidating certain services like billing and human resources. We'll both be on the Epic IT platform, allowing single medical records to be available for two or three million people.
Q: Why did your organizations find one another to be the most viable partners?
Dr. Hochman: We've known each other for a long time. We've been doing supply chain together for over a decade. Our senior board and management went through an exhaustive review of the possible partners. [They reviewed] same-size systems and larger. Universally, we fell upon Providence as the best match.
Their clinical transformation, management style and EHR commitment were strong for us. We looked at where Providence is and where we are, and there's really no overlap. Providence doesn't have acute representation in Seattle or this county. The first draw was [their ability to] transform and reduce costs. It also makes it easier when you're not in each other's backyard.
Mr. Butler: We have been working fairly closely together in the past decade. We've established clinical resource centers, and we've had some success working together on that. We felt by working closer we could accelerate that success and move at a more rapid pace. We've been talking about this for some time, but what accelerated it was the combination of economy and both Providence and Swedish selecting Epic as an IT platform.
Q: How significant of a factor is that Epic IT platform? What role does the EHR play in looking for a partner?
Dr. Hochman: I think HIT is really important. We realize we can help each other. Large health systems need to become [information-rich] organizations. The strength of a hospital's ability to compete in the future will be based on health information. One database will allow us to be more sophisticated with population based medicine.
Mr. Butler: IT platforms are very significant. The approach both systems are taking is standardizing all the workflows when using the Epic IT system. These are the order sets that clinical teams would use to drive best practice standardization. As an example, one thing we identified, is if we standardized treatments for breast cancer, we could save money approximately $42M per year across the entire [merged] Providence and Swedish system. That standardization is executed through a shared IT platform.
Q: You're still in the early stages of this deal, but what single piece of advice would you each offer to other hospital CEOs if they pursue a partnership in the next year? What, from this deal so far, has made an impression on you?
Mr. Butler: A couple of things. First, it's critical that both parties truly understand the business and economic environment we're in. Secondly, be sure that senior leadership and governance are 100 percent aligned with details in combined strategies to meet challenges and survive in this economic environment. Leadership should be completely aligned on that.
Something that has probably left the biggest impression, or something I've been pleasantly pleased by, is the overall positive response by key stakeholders. They're recognizing that we're truly trying to improve costs and quality by coming together. There was a nice article in [the local] Everett Herald that really called that out. This is due in part to having real alignment and vision, but also being pro-active in the development of a communication and public relations plan to share that vision.
Dr. Hochman: Do your homework early. Think about partners that make sense for what an organization is trying to do. All of this has to benefit the community. The first screen our board put this [partnership] through is [determining whether] this going to be a benefit to the community we live in.
A lot of mergers are done for the wrong reasons. We wanted alignment with our missions, to meet community needs and [to form a partnership] that earned support from physicians. I'm here on the ground in the Seattle community. I've talked to business leaders in Seattle, and they like the message we're sending with this partnership.
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Swedish and Providence leaders said they had to think beyond the traditional merger or acquisition to strike this innovative arrangement. Here, Swedish Health Services President and CEO Rod Hochman, MD, and Providence Health Services Chief Operating Officer Mike Butler discuss trends in hospital M&A, explain what drew their organizations together and offer advice to hospital leaders considering partnerships.
Q: There are plenty of flavors of hospital transactions — mergers, joint ventures, clinical affiliations, acquisitions and more. Why did a partnership model appeal to you and your organizations the most?
Mike Butler: We chose an affiliation because we felt it appealed to both parties. Our organizations have been serving the Puget Sound area for more than 100 years, and we felt we needed to honor our [respective] heritages. An affiliation also met the needs of our key stakeholders, as well as the Archbishop. It allows us to achieve greater affordability and patient access. This was some of the rationale for an affiliation.
Dr. Rod Hochman: As Mike said, what we looked for is what would fit for both of us. We wanted to be able to manage the organizations together. From our standpoint, that was extremely important. We'll have one board for the organization, which will be combined with some of the Swedish board members. Whatever name you want to use, [the partnership] effectively allows [a] management [team] to run the organization under one team concept. [Note: The affiliation is still in the early stages of regulatory review and is not yet final. The systems have not yet finalized the partnership's proposed governance structure.]
Q: Under the proposed deal, Providence and Swedish will maintain their respective identities: Providence will remain Catholic, Swedish will keep its name and stay non-religious. That's pretty unique in the world of healthcare transactions. Can you explain how you at this strategic decision?
Dr. Hochman: I serve on the board at Catholic Healthcare West, so a lot of organizations are trying to look at how you [join] faith-based and non-faith based organizations and respect both identities. Over a year ago, we started considering structures that could respect the Catholic identity while respecting a non-religious relationship with Swedish. We think we came up it.
I think it provides a good opportunity for non-Catholic [hospitals] to join together in a well-integrated organization. There are lots of joint operating agreements, but [a partnership] allows them to come together for clinical care in a way that still respects the Catholic and non-Catholic nature of the institutions. As much as I've seen, [this is] groundbreaking.
Mr. Butler: We wanted to honor the heritage of both organizations. We've been in the state of Washington for more than 150 years, so we wanted to maintain our identity and maintain the Catholic identity on the Providence side. The affiliation will result in a combined vision through clinical and administrative best practices to improve access.
Q: In your opinion, are hospital partnerships today any different from 5, 10 years ago? If so, how?
Dr. Hochman: I think what we're seeing a whole new era of [consolidation]. We've got health insurers buying health systems. We're seeing for-profits and non-profits coming together, and private equity relationships with non-profits. There's a whole host of "less conventional" relationships than in the past. Now we're seeing a whole host of different types of arrangements indicative of the fact that, given where healthcare is going, people are seeing the need to partner, consolidate and form sophisticated arrangements.
Mr. Butler: There's more obligation today to find long-term solutions for the communities we serve. We felt like we needed to take a proactive approach to resolving this national crisis. That's what really stimulated this affiliation and moved it along. It's also important to work across communities. So, this was largely about meeting the national crisis and connecting communities. We could not afford to wait around for [the provisions of] reform.
Q: What would be the benefits of this partnership?
Dr. Hochman: We want to lead with clinical transformation. We don't believe we can [achieve] cost-effective care by traditional cost-cutting methods, like back office [cuts] or a few FTEs less here and there. That won't make it where we see healthcare going. The clinical enterprises are where we see opportunity. If we can reduce variation over scale, that's the way to reduce cost and really improve care. That's why we're doing this. That's the most important part of this partnership.
Mr. Butler: Improved access, quality and cost. We think we can save significant amounts annually through developing clinical best practices and reducing administrative expenses, such as consolidating certain services like billing and human resources. We'll both be on the Epic IT platform, allowing single medical records to be available for two or three million people.
Q: Why did your organizations find one another to be the most viable partners?
Dr. Hochman: We've known each other for a long time. We've been doing supply chain together for over a decade. Our senior board and management went through an exhaustive review of the possible partners. [They reviewed] same-size systems and larger. Universally, we fell upon Providence as the best match.
Their clinical transformation, management style and EHR commitment were strong for us. We looked at where Providence is and where we are, and there's really no overlap. Providence doesn't have acute representation in Seattle or this county. The first draw was [their ability to] transform and reduce costs. It also makes it easier when you're not in each other's backyard.
Mr. Butler: We have been working fairly closely together in the past decade. We've established clinical resource centers, and we've had some success working together on that. We felt by working closer we could accelerate that success and move at a more rapid pace. We've been talking about this for some time, but what accelerated it was the combination of economy and both Providence and Swedish selecting Epic as an IT platform.
Q: How significant of a factor is that Epic IT platform? What role does the EHR play in looking for a partner?
Dr. Hochman: I think HIT is really important. We realize we can help each other. Large health systems need to become [information-rich] organizations. The strength of a hospital's ability to compete in the future will be based on health information. One database will allow us to be more sophisticated with population based medicine.
Mr. Butler: IT platforms are very significant. The approach both systems are taking is standardizing all the workflows when using the Epic IT system. These are the order sets that clinical teams would use to drive best practice standardization. As an example, one thing we identified, is if we standardized treatments for breast cancer, we could save money approximately $42M per year across the entire [merged] Providence and Swedish system. That standardization is executed through a shared IT platform.
Q: You're still in the early stages of this deal, but what single piece of advice would you each offer to other hospital CEOs if they pursue a partnership in the next year? What, from this deal so far, has made an impression on you?
Mr. Butler: A couple of things. First, it's critical that both parties truly understand the business and economic environment we're in. Secondly, be sure that senior leadership and governance are 100 percent aligned with details in combined strategies to meet challenges and survive in this economic environment. Leadership should be completely aligned on that.
Something that has probably left the biggest impression, or something I've been pleasantly pleased by, is the overall positive response by key stakeholders. They're recognizing that we're truly trying to improve costs and quality by coming together. There was a nice article in [the local] Everett Herald that really called that out. This is due in part to having real alignment and vision, but also being pro-active in the development of a communication and public relations plan to share that vision.
Dr. Hochman: Do your homework early. Think about partners that make sense for what an organization is trying to do. All of this has to benefit the community. The first screen our board put this [partnership] through is [determining whether] this going to be a benefit to the community we live in.
A lot of mergers are done for the wrong reasons. We wanted alignment with our missions, to meet community needs and [to form a partnership] that earned support from physicians. I'm here on the ground in the Seattle community. I've talked to business leaders in Seattle, and they like the message we're sending with this partnership.
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