Health Care Law Blog

Choosing Your Health Care Alliance Partner

Everyone in the health care industry is confronted with consolidation.  If you are a health care provider, you are likely to be confronted with it as governmental regulations and cost pressures continue to prompt alliances and networks among competitors.  Also, anyone looking to engage in the new Accountable Care Organizations created by the Health Reform Act most likely will be joining forces with additional health care entities.  As a health care business attorney, I have been on both sides of the table.  If you are considering an alliance, here are a few suggestions for you to consider based upon my experience in selecting an alliance or network partner.

1. Consider Current Management and Board of Directors.  First, consider the ages of the CEOs of the two organizations.  It will be extremely difficult to form an alliance if both are under age 55, as both CEOs may want to maintain control of the new organization.  Unless one CEO has clearly decided to move on, this power struggle may be an issue.  An alliance works best when one CEO is approaching retirement and the other is younger and capable of leading the new organization.
   
   Also, consider the board of directors of both groups.  Consider if the board of directors of the target entity has a mindset that would favor an alliance or if it merely wants to stay entrenched.  An entrenched board of directors may engage in a struggle that ultimately dooms the organization.  In that case, it would be better to work with the CEO of the target organization to seek changes in its board of directors over a few years and then attempt an alliance at a later time.
2. Compare Cultures.  Are the organizational cultures compatible?  Are they known for integrity and good citizenship?  Are they progressive and forward thinking, or is one slow to implement change?  Have they embraced new technology?  How does the acquiring company treat its leadership team and employees?  Is it an empowering employer?  Will it preserve the jobs of employees in the target entity?  These are just a few of the important questions to ask about any potential ally.  Changing culture is like turning around an aircraft carrier.  It is difficult if not impossible to do even with the finest educational programs aimed at changing attitudes.  It will require an extended amount of time to bring in new people who embrace the desired culture.
3. Contemplate Character and the Marketplace.  Is the target entity known to be a leader in its niche?  Is it growing market share?  Is the target's business model sustainable so as to enable it to continue to go it alone?  How is the other party perceived by its peers?  Has it received accolades for patient care?  An entity's character or perceived character along with the market are important factors to consider.  A bad reputation or stagnant market may give rise to serious reasons to consider avoiding a possible alliance.
4. Cogitate Collaboration of Resources.  Is there an opportunity for synergism?  If the acquiring group can use its referrals to expand the revenue of the target, that can be a win-win.  What about cost savings?  Can duplication of equipment, facilities or staff personnel be reduced?  If the acquiring company has advanced computer systems or electronic records and the target lacks the capital to build them, the alliance can be a life saver for the target.  Overall, review whether there can be economies of scale and benefits of combined resources.

Conclusion

In considering an alliance partner, also identify your next best alternative.  Evaluate each alternative in light of these factors and any discussed above that may be important to your situation.  Take the time to make an informed business judgment rather than an emotional decision based upon fear or latent prejudices and you will enhance your opportunity for a successful outcome. 

If you have any questions, give me a call at (616) 796-2501 or shoot me an email using the form below.

Categories: Health Care Reform, Hospitals, Insurance, Physicians