As hospital and health system transactions continue in the U.S., a number of them have involved academic health systems acquiring rural and community hospitals, as well as smaller health systems.
The smaller organizations are seeking strategic partnerships or acquisitions amid financial challenges to maintain care access in local communities. The deals also offer certain benefits to academic health systems to support their strategic goals.
In total, at least 10 academic health systems in eight states recently acquired or plan to acquire hospitals.
Becker's asked CEOs of two of these health systems to share the factors they consider when deciding with whom to align or merge. What criteria are most important in choosing partners, and how do they ensure these partnerships will help sustain their mission in the future? How large should you grow to sustain the mission in the future? How large is too large?
Midland-based MyMichigan Health, a nonprofit system affiliated with the University of Michigan Health System, purchased three Michigan hospitals from St. Louis-based Ascension in August. MyMichigan also acquired the Ascension Medical Group care sites and physician practices associated with the hospitals, which include:
- Ascension St. Mary's (Saginaw)
- Ascension St. Mary's (Standish)
- Ascension St. Joseph (Tawas City)
For Lydia Watson, MD, president and CEO of MyMichigan Health, her favorite mantra regarding acquiring the Ascension facilities is, "It's not about getting bigger; it's about getting better and stronger."
She said the most important criterion for choosing a partner is cultural alignment.
"If you don't have cultural alignment, it's very difficult to have success in any of the critical measures of success," Dr. Watson said. "And it's also very important to focus on doing what's best for the patients that we plan to serve."
Cultural alignment is part of MyMichigan Health's overall process of evaluation, which includes what she refers to as the "five C's."
First are the clinical aspects of an organization. "Will the organization that we're talking about have the ability to provide high-quality health services to the community? Is there a potential for increasing service offerings? Because, again, we're focusing on what we can do to provide the highest quality healthcare in the populations that we serve," Dr. Watson said.
"Is there a way to potentially increase potential service offerings? And the other thing we look at is, will provider access and recruitment be improved? And then, lastly, we look at population management strategy: Will it be strengthened? Because we know that if we are adding more patients into our aligned population health strategies, that makes it stronger for everyone."
The second "C" is commitment. Dr. Watson said this part of the process involves asking the following questions: Can the organization provide the necessary financial commitment to maintain high-quality standards? Is the other organization financially stable? Are they struggling? If so, are there obvious opportunities for cost reduction?
"We look for cost reductions, operational efficiencies, economies of scale," she said.
The third "C" is critical mass. "Will the relationship that we're looking at provide access to a larger population, and does it potentially increase our geographical footprint? And then, do we already have market share in the area that we're looking at, or not? And if we do have market share, is there a potential, by collaborating, joining, or acquiring the other organization, to increase market share further?" Dr. Watson said.
The last two "C's" are related to community — examining whether the acquisition or partnership benefits community members — and culture — assessing if it is the right cultural fit for MyMichigan Health and aligns with its values and future purpose. And assessing the cultural fit includes examining areas such as leadership styles and level of physician involvement.
"Even when we look at leadership styles and leadership teams, we expect that there's going to be talent in that area before you're trying to make decisions," Dr. Watson said. "But if everybody is an expert in the job description that they're in, what's the differentiator?
"The soft skills make the difference. And helping to have a strong culture and building culture when you're joining two organizations together is really critical."
As for how large is too large, Dr. Watson said, "It really depends."
"It depends on the organizations and the understanding that growth needs to be strategic, because it's got to focus on sustainability," she said.
She also noted that if the cons outweigh the pros of moving forward with an acquisition, " that means there's going to be diminishing returns on scale, and so at that point, you don't need to grow. You need to figure out how to become more efficient and more effective."
'Multiple missions'
MyMichigan Health is not the only academic health system that recently acquired hospitals. In August, UCSF Health acquired San Francisco-based Saint Francis Memorial Hospital and St. Mary's Medical Center from Dignity Health for $100 million. The hospitals are now known as UCSF Health Saint Francis and UCSF Health St. Mary's, respectively.
With this recent acquisition, Suresh Gunasekaran, president and CEO of UCSF Health, highlighted three considerations when deciding with whom to align and partner, and whom to acquire.
"The first thing we look for is alignment around our vision and who we serve," Mr. Gunasekaran said. "At a fundamental level, we're really only looking for partners who share our commitment to making sure that everyone has access to excellent care regardless of their financial situation."
He said the second consideration "is at the core of our operations, we're an academic medical center. We want to work with partners who value all three parts of our mission. We view ourselves as having multiple missions — we have learning, research and patient care and we think it's critical to have partners who are interested in making sure that world-class education and research are hand in hand with world-class care delivery."
The third consideration for UCSF Health is related to the workforce. "Our people are at the heart of what we do," Mr. Gunasekaran said. "We want to make sure we're aligning with partners who value their teams and share our commitment to training, developing and supporting our people so they can best care for our patients."
Read more about recent acquisitions by academic health systems here.