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Healthcare Business Solutions
February 27th, 2017

From Dave’s Desk: Understanding mergers, acquisitions, and affiliations


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Locally, regionally, and nationally, we continue to read about mergers, acquisitions, and affiliations that are taking place between healthcare systems. Often, these strategies are implemented due to a need for additional resources and access in order to do everything possible for patients while simultaneously controlling costs. These three different business strategies support systems that ultimately help to better serve patients.

Before we get too deep into why, let’s talk about the difference between these three strategies.

Mergers

Healthcare mergers involve a full integration of two healthcare systems coming together to provide services for a patient as a combined new company. For example, in 2016, Advocate Health Care and Northshore University HealthSystem, both in Chicago, Illinois, announced that they were going to merge. These two large health systems would create the 11th largest health system in the country.1 Like other mergers, Advocate and Northshore are currently working to get their merger approved. Often, regulators challenge mergers because it’s important to be sure that mergers are truly in the best interest of patients in terms of cost and competition.

Acquisitions

An acquisition in healthcare is when a system purchases an independent entity—a hospital, a physician practice, a physician group, an imaging center, a lab, or a pharmacy to name a few. Specifically, acquisitions have increased the number of physicians and advanced practice providers who were independent and are now employed by health systems. Here is a local example from Bloomington, Indiana. In 2011 Bloomington Hospital, an independently run hospital, was acquired by IU Health, a large health system. The hospital was then newly named IU Health Bloomington Hospital.

Affiliations

An affiliation is an association between two healthcare systems. Legally, each system is separate and maintains its independence. However, the two systems typically agree to brand their name and/or services with one another. Affiliations could be clinical (patient services) or contractual (buying and purchasing), and these affiliations help to expand patient access and best practices through information sharing. For instance, Community Health Network, a large hospital system, is an affiliated partner with MD Anderson Cancer Network. This means that Community Health hospitals are providing cancer services with MD Anderson’s evidence-based guidelines and best practices.2

As we move forward as an industry, we continue to go through waves of mergers, acquisitions, and affiliations. Currently, we’re in a small wave of affiliations where systems are aligning with each other to help serve patients in the best way possible.

Many years ago, as healthcare began to grow more expensive, healthcare leaders started to brainstorm about what to do to bend the cost curve and to keep hospital and physician office doors open while continuing to provide high-quality patient care. As expense and complexity for healthcare systems grew, mergers, acquisitions, and affiliations emerged as solutions. The goal with these three business strategies was to expand access, engage best practices, lower operating costs, and share resources.

The different strategies require and save different amounts of energy, resources, time, and money. For example, mergers typically take more energy, resources, time, and money than affiliations. It’s important for healthcare systems to understand the holistic approach before moving forward with one of these three strategies. As a medical device manufacturer, it’s important for us to understand the impact and support the goals of these strategies.

As healthcare systems go through these changes, it’s our objective, as a medical device manufacturer, to help improve the quality of patient care by supporting efficient and effective strategies as systems continue to fulfill their mission.

Has your healthcare system been through a merger, acquisition, or affiliation? Share your thoughts with me on what made it successful on Twitter and LinkedIn.

 

Citation:

  1. Chicago Tribune, Lisa Schencker, November 16, 2016, Advocate, NorthShore will keep fighting for merger despite court decision
    http://www.chicagotribune.com/business/ct-advocate-northshore-continue-fighting-1117-biz-20161116-story.html
  2. Community Health Network, MD Anderson NetworkR Affiliation
    https://www.ecommunity.com/services/cancer-care/md-anderson-cancer-network-affiliation

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David Reed is currently Vice President of Operations, Vice President of Healthcare Business Solutions for Cook Medical Incorporated. With over 30 years of life science industry expertise Dave holds an MBA from California Miramar University and serves as a member of the Indiana University Kelly School of Business Supply Chain and Global Management Academy Advisory Board.