Driving Value through Strategic Alliances
Physician offices, hospitals, and health systems have long been synonymous with “healthcare,” under a system in which payers essentially exchanged payment for services rendered.
Driven by our nation’s largest payer, Medicare, and enhanced by our growing ability to collect and analyze data about the care we provide, the industry is shifting from a model of “healthcare” to one of “health” that encompasses the overall wellness of populations, locates interventions in their most appropriate and cost-effective settings, and measures how effective a job we are doing.
This “new normal” of moving from volume to demonstrated value is far more than a semantic change. Twenty-five years after the Institute for Healthcare Improvement introduced the Triple Aim (“applying integrated approaches to simultaneously improve care, improve population health, and reduce costs per capita”), recent changes in payment models have focused providers of all types on managing the quality, quantity, and cost of care. Regardless of size, hospitals and systems are now challenged to respond. To succeed, most must address the first clause of the Triple Aim: to use “integrated approaches” in partnerships comprising other providers, payers, and community-based organizations, as well as potential industry disruptors.
Although rapid consolidation through hospital mergers is well-documented and expected to continue unabated, it is unlikely that ever-larger health systems will resolve the issues facing our industry. We expect strategic alliances—partnerships short of merger—to proliferate as organizations pursue the Triple Aim and recognize more fully the impact of the social determinants of health (poverty, education, housing, and other environmental factors) on their ability to reduce readmissions, deliver a cost-effective “bundle of care,” and effectively manage population health under ACO or global budget payments.
How might such strategic alliances fit into your organization’s approach?
What Is a Strategic Alliance?
By definition, an alliance is a relationship in which parties agree to work together around areas of common interest. Such alliances may be contractual, joint ventures, management services agreements, or affiliation agreements short of merger or acquisition. Because members must agree on common goals and will naturally place their own interests before those of the alliance itself, these relationships can be difficult to manage and may be less sustainable long term than fully integrated structures. However, they are often the only or best way to meet the objectives of the Triple Aim.
Key Success Factors for Strategic Alliances
For alliances to have any chance for long-term success, they must include:
- Trusting relationships—there is no substitute for trust.
- A clearly articulated statement of purpose. Generally, the more focused the mission, the more likely the success. Avoid overly broad statements of purpose.
- A clear, agreed-upon vision statement and measures of success for three years.
- A clear, practical action plan with specific resource commitments for each party.
- Delineation of roles, responsibilities, and expectations for each member and what authorities, if any, will be delegated to the alliance.
- A structure sufficiently strong to deliver the desired outcomes.
- Anticipation of potential obstacles, so that if they occur, they do not unnecessarily derail the relationship.
- Dedicated alliance staff and committed hospital/health system leaders.
Key Board Takeaways
To succeed in developing and participating in strategic alliances, the board must:
- Recognize that any partnership or alliance is the board’s call.
- Remember alliances are a means to an end, not an end in themselves.
- Understand the why of any proposed alliance and how your organization should measure its success in driving value.
- Understand what you will “give to get” in any proposed alliance.
- Anticipate at the outset the potential for sunsetting the alliance.
- Choose alliance partners carefully—and make sure your organization would be a desirable partner.
Myriad provider–provider alliances exist both statewide and nationally. Typically, these focus on creating a “super-brand” or the critical mass to become a narrow provider network capable of managing population health. The Mayo Clinic Care Network is now a 40-member international strategic alliance. MD Anderson Cancer Center and the Cleveland Clinic, among others, have similarly leveraged their expertise and brands to enhance service offerings locally, while gaining exposure and attracting quaternary care cases from local markets. Another provider–provider alliance, the Midwest Health Collaborative comprises six major Ohio health systems, including the Cleveland Clinic. The common interests of the strategic alliance members are typical of most such networks: to increase value to the communities they serve and to their collective organizations through:1
- Creating a statewide provider network
- Exchanging best practices
- Sharing resources
- Reducing costs
- Developing innovative ways to deliver care across large populations
- Reducing care variation
These relationships, while contractual, differ from traditional payer contracts in that the common interest is to enhance value to their shared beneficiaries and create competitive advantage. Often they are structured as narrow provider network arrangements. Vivity, for example, is an integrated network of seven highly competitive Southern California health systems, including Cedars-Sinai and UCLA Health. In partnership with Anthem Blue Cross, this narrow network in its first year signed on 13 large employers, including seven that were not previously
Anthem customers.2 In most such partnerships, parties share data and resources to ensure patients efficiently obtain the preventive services, care, and education they need. Examples abound in every state.
While less likely to attract national attention, provider–community alliances drive value locally by coordinating the continuum of care, moving past a hospital-centric focus, and addressing social determinants of health. Patients, as people first, come from home or homeless situations that may support or impede their health. Community organizations and agencies that address housing, heat, nutrition, public health, wellness, mental health/substance abuse, and other social needs can and should be essential partners in improving community health.
Addressing the social determinants of health is a “wicked problem,” that is, one that is particularly difficult (or even impossible) to solve. Without attending to the thorny issues patients face, hospitals and systems cannot realize their full potential to achieve the Triple Aim. Addressing these requires collective impact: the commitment of a group of important actors from different sectors to a common agenda for solving a specific social problem.3 More than a simple collaboration, these relationships should be viewed as strategic alliances.
Examples of such community alliances range from a consortium of area hospitals committing time and money to ensure adequate affordable housing, to hospitals/systems investing in school partnerships to encourage potentially at-risk students to focus on careers in healthcare, to the BUILD Health Challenge,4 which strengthens partnerships between local non-profit organizations, hospitals/systems, and local health departments to support interventions in low-income urban neighborhoods to improve community health.
Moving forward, most hospitals— whether independent or part of a larger system—will be participants in multiple partnerships or alliances focused on driving value. These types of relationships require cultivation and the investment of tremendous management time and energy. Therefore, the board should be open to such alliances but very careful to approve only those that hold the greatest likelihood of enhancing your mission and strategy.
The Governance Institute thanks Marian C. Jennings, M.B.A., President, M. Jennings Consulting, Inc., and Governance Institute Advisor, and Jennifer Swartz, Consultant, M. Jennings Consulting, Inc., for contributing this article. They can be reached at email@example.com.
The Governance Institute, BoardRoom Press Advisors’ Corner – December 2016
Marian C. Jennings, President – M. Jennings Consulting, Inc.
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2 Brett Brune, “How Anthem’s Vivity Venture Is Faring in Southern Calif. Showdown with Kaiser,” Modern Healthcare, October 23, 2015.
3 John Kania and Mark Kramer, “Collective Impact,” Stanford Social Innovation Review, Winter 2011.
4 For more information on the BUILD Health Challenge, see http://buildhealthchallenge.org.