As margin pressures prompt organizations to seek out collaborative relationships, Becker’s Healthcare and Bank of America Merrill Lynch recently hosted a CFO roundtable and an industry survey to share insights. Below are five key learnings from the roundtable discussion.
Chief Financial Officer
Hendricks Regional Health Danville, IN
Chief Financial Officer
Rice Memorial Hospital Wilmar, MN
Chief Financial Officer
South Nassau Communities Hospital Oceanside, NY
Head of Healthcare Strategic Advisory
Bank of America Merrill Lynch
1. IDENTIFY THE NEED
Before searching for a partner, CFOs should identify a core need within their organization. When examining service lines or departments, executive teams should pose the question: Are we the best at this? If not, is it possible to become the best on our own? If not, how do we partner with an organization that will drive excellence?
2. FIND THE RIGHT PARTNER
Once establishing the need, CFOs, executive teams and boards should solicit and evaluate potential partners. This process can take as little as four months or up to two years, depending on the transaction structure, regulatory issues, stakeholder must-haves, and relative leverage of parties.
Like-minded vision— South Nassau Communities Hospital took one year to evaluate potential partners before striking a deal with Mount Sinai Health System. What tipped the scale? "The No. 1 thing for us was someone who had a similar vision of wanting to bring as much expert, tertiary-level care to the 900,000 people we serve," says CFO Mark Bogen.
Experience and credibility— A referral is the largest influencer when evaluating partners, says Hendricks Regional Health CFO Isadore Rivas. "I likely get 20 emails a day, minimum, that are cold calls from vendors soliciting, in essence, their services… unless there is some kind of reference or I know the organization or individual, I respond, 'No interest at this time.'"
Cultural compatibility— Successful long-term partnerships are built on shared values. "We only want to work with people who value high-quality, high patient satisfaction,” says Rice Memorial Hospital CFO William Fenske.
Financial commitment— Partners must define how their investments will support their mutual vision. When examining affiliates, Mark Bogen evaluates partners that can help meet his organization’s capital objectives.
3. NEGOTIATE WITH A FINANCIAL FOCUS
"The shortcoming of any joint venture tends to be on the financial arrangement and what may have looked good starting out," says Mark Bogen. Whether it is a performance-based agreement, subscription-based model, leased-space arrangement or joint venture, roundtable CFOs recommend holding fiscal plans between two and five years. They also advised building contractual opportunities to reassess agreements after one year to account for economic changes.
4. ARM YOURSELF WITH DATA
Many CFOs arrive at the bargaining table asking for a price break, but it helps to have strong data to back it up. Isadore Rivas told how a blind comparison of figures from a partnered group-purchasing organization revealed that he was paying 50% more for orthopedic supplies than local competitors. He disclosed the data to his vendors in a conference call, which helped seal the negotiation.
5. MAKE IT A PRIORITY TO ASSESS OUTCOMES
While most partnerships differ in objective, scope and priority, CFOs agree that clinical outcomes are more difficult to measure than financial or operational metrics. Assessment timing should enable each party to more effectively address issues and improvements. Ninety-one percent of health system and hospital executive respondents said they assess partnership performances every one-to-three months.
FROM WORST TO FIRST
Isadore Rivas recently raised concerns with a partner charging Hendricks Regional Health three times the going market rate for self-pay patient payments. Seven months later, what he once classified as his worst partnership transformed into one of his best. The vendor not only readjusted its pricing agreement, but overhauled its shared client vision to gain a more sophisticated view of Hendricks’ billing methodology and collections. "They took an approach of better understanding our operations, our objectives and our business," says Rivas.
CFO SURVEY RESULTS
64% of surveyed CFOs outsource or reallocate key organizational functions.
46% work with 20 or more strategic partners.
56% of CFOs say ACA uncertainty has not impacted partnerships in the prior six months.
27% say political uncertainty has increased their interest to find partners.
18% say they have drawn increased interest from potential partners.
18% have halted partnership activity until they have more clarity about the ACA.
When evaluating partners, 54% of CFOs look at strong clinical outcomes/specialties.
10% look for the same EHR platform.
9% seek extensive physician and referral networks.
64% of CFOs assess partnerships’ clinical outcomes and financial savings every month.
27% conduct assessments every three months.
9% assess their partnerships once per year.