Consolidation has been seen by many executive teams as a strategy necessary for long-term survival given the changing health and human services market—more value-based reimbursement, the continued shift to managed care, new (and better funded) competition, and tight margins have made “growth” seem like the best path towards sustainability. This has lead to a continuous explosion of merger and acquisition (M&A) activity. There was a 14.4% growth from 2017 to 2018 in Health care M&A activity. And in 2018, behavioral care mergers had the most growth among all health care sectors—a 52% increase in M&A volume between 2017 and 2018 (see Healthcare Merger and Acquisition Activity Up 14.4% in 2018). Larger organizations have the resources, reputation, and connections to shape the market to their advantage (see Economies Of Scale 101). They can spread the overhead costs for technology, marketing, and other administrative and operational functions (financing expenses, compliance, legal counsel, etc.) over a larger revenue base – which in many cases gives them a lower unit cost (see Finding The Right Partner: A Guide To Starting The Merger, Acquisition & Affiliation Process For Non-Profit Organizations). When executives think about growth, their first thought is typically about M&A—but they are not the only path.
There are many other forms of partnerships that can help organizations to gain scale without traditional M&A. Joint operating agreements, shared services organizations (SSO), and administrative services organizations (ASO) allow for the consolidation of management functions while the organizations operate separately. Purchasing cooperative allow organizations to reduce costs through “volume” purchasing discounts. Consolidations or the creation of a “super parent” structure creates a new organization entirely, while all participating organizations lose their identities. Independent practice associations (IPA) are networks of independent practitioners or provider organizations that form an association to act as the corporate structure for contracting and negotiating with health plans (see The OPEN MINDS Guide To Strategic Collaborations).
This last option for scale was the topic of an interesting session last week at The 2019 OPEN MINDS Strategy & Innovation Institute session, Building Scale Without A Merger: Independent Practice Association Models For Innovation. The session featured two different IPA models, both of which are harnessing scale to help manage quality and give leverage to negotiations with payers. The session featured Elizabeth Mauro, LCSW-R, Chief Executive Officer, Endeavor Health Services; and Matt Berg, NHA, Chief Executive Officer, LeadingChoice Network.
Ms. Mauro shared her work at Endeavor Health Services, a private non-profit behavioral health organization that offers a comprehensive range of services from seven locations in Western New York. Endeavor is a member of the Value Network, IPA: Independent Practice Association, which is designed to enhance the bargaining power of the local behavioral health care system. It is a Behavioral Health Care Collaborative (BHCC) of over 85 partners that services consumers in all eight counties of Western New York. Endeavor serves 5,300 consumers annually, across 51,656 visits.
Value Network operates three contacting models: direct contracting with the health plan; joint primary care contracting; and joint accountable care organization (ACO)/integrated delivery system contracting—with three risk categories: pay-for-performance on quality metrics only; upside contracting with gain share adjusted for quality metrics; and upside and downside risk contracting with adjustments for quality and limits on gains and or losses. Additionally, each IPA member organization is free to negotiate a better deal separately if they can.
Mr. Berg shared his work at Madison, Wisconsin-based LeadingChoice Network, which is a financially and clinically integrated network that aligns services to improve the delivery of care in partnership with health plans and health systems, and to help high-performing (and metrically monitored) provider organizations become “preferred providers.” LeadingChoice Network members cover 34,163 lives annually, including 20,610 in post-acute care, 4,517 in custodial skilled nursing facilities (SNF), 5,272 in assisted living, and 3,764 in independent living. LeadingChoice Network has signature authority for contracts with health plans that will cover everyone in the IPA.
I saw three key takeaways that each speaker emphasized throughout their presentations. First, establish agreed upon performance measures. Quality outcomes among the members of the IPAs were a main concern, and to ensure a certain level of quality, they looked at multiple factors in each participating organization, including quality of the work environment, length of staff tenure, and the ability to build capacity (while also scaling the quality outcomes). Second, all participants need to understand the contracting model and the risks associated with it. Every contract and every health plan will be different; everyone needs to be on-board and committed to the different models. Third, partner with like-minded organizations. Take the time to make sure that executive team and board members are knowledgeable about the strategy and goals of the IPA, are familiar with the other member organizations, and are informed about the health plans they are likely to contract with.
In the coming years, as the need for scale continues to drive long-term sustainability, expect to see more mergers, acquisitions, affiliations, partnerships, and collaborations. And keep your options open for whatever form that growth takes. For more, check out these resources in the OPEN MINDS Circle Library:
- M&A ‘Tips, Tricks & Advice’
- Planning To Buy Another Organization?
- Other Weird Arrangements
- Collaborations Demand ‘Proving Your Business Case’
- In Mergers & Collaborations, Don’t Forget The Tech Plan
- How Do Meta-Leaders Create The Collaborations That Matter?
- The Challenge of Collaboration is to Do What We Do Not Want to Do
- Viewing Collaboration as a Strategic Art as Opposed to the Option of Last Resort
- 10 Keys To Successful Collaboration
- How Do You Pick The Right ‘Partner’?
And join me on August 15 in Long Beach, California at The 2019 OPEN MINDS Mergers, Acquisitions, & Affiliations Summit: Best Practices For Non-Profit Health & Human Service Organizations – A Centerstone & OPEN MINDS Collaboration. The event will feature John F. Talbot, Ph.D., Vice President, Corporate Strategy, Jefferson Center for Mental Health, & Senior Associate, OPEN MINDS; Scott Hoffman, Chief Financial Officer, Mosaic; David C. Guth, Jr., Chief Executive Officer, Centerstone; Roy Leitstein, MS, Chief Executive Officer, Legacy Treatment Services; Mike Lyons, Strategy & General Counsel, Mosaic; Patrick Maynard, Ph.D., Chief Executive Officer, I Am Boundless, Inc.’ and Donald Parker, LCSW, President, Hackensack Meridian Health Carrier Clinic.