Determining Your Options: Common Acquisition and Affiliation Approaches

Now that you understand your organization’s goals and needs, consider whether some form of acquisition or affiliation activity can help your organization reach its goals. Common acquisition and affiliation approaches are defined below. This is just a representative listing; new approaches to acquisition and affiliation continue to emerge.

As you review these approaches, consider the following questions:

• Does vertical or horizontal expansion, or both, best align with your organization’s strategic priorities? How would these be prioritized? Why?
• How important is diversification as a strategy vis-à-vis traditional market expansion?
• Are there certain approaches that seem like a better fit for your organization? Why?
• Would any of these options allow your organization to stop owning certain resources, and instead obtain them through partnership or outsourcing?
• Does partnership with a health plan offer your organization something strategically important and distinct from other forms of affiliation? In what ways?

Tool: Matching Goals with Options

Common Approaches

• Merger of a not-for-profit (NFP) hospital into a NFP system. Usually the merger parent board assumes all assets and liabilities of the newly merged organization. In some cases, the local board continues to exist and may have selected responsibilities such as quality, credentialing, or community need.
• Merger of an NFP hospital into a for-profit (FP) system. This is typically an acquisition. The acquired NFP is valued, and the value (net of liabilities) often becomes a community foundation.
• Merger of a NFP hospital into a FP/NFP joint venture. Some transactions involve less than a 100 percent purchase, with the local entity continuing as a joint venture partner.
• Merger of a NFP into a FP system plus a “quality partner” FP systems sometimes link with an academic medical center or other organization known for its quality. The “quality partner” may be a joint venture owner of the acquired hospital.
• Contractual system. Not all consolidated systems are merged entities. For example, local boards within the system might retain all fiduciary powers. The top leaders of the local hospital or system are employed by the larger system in order to coordinate strategies; however, the overall arrangement may be a renewable contractual relationship.
• Collaborative partnerships. Health systems are increasingly joining, often through contractual joint ventures, to address selected issues together – such as revenue cycle, supply chain, or regional network formation. Examples include the BJC Collaborative, AllSpire Health Partners, and the Integrated Health Network of Wisconsin.
• “Super” accountable care organization/clinically integrated network (ACO/CIN). Increasingly, clinically integrated networks recognize the opportunity to achieve economies (e.g., sharing population health infrastructure and expertise) by combining with each other.
• Health plan/provider partnership. These “vertical consolidations” take many forms. In some cases, a health plan, physician group(s), and hospital systems enter a joint venture relationship to serve a large employer. In some cases, health plans have acquired physician groups.
• Employer/provider partnership. These contractual relationships, usually involving very large employers or a group of large employers, relate directly with provider networks.

The tool below displays various approaches along a continuum from less than fully to fully integrated acquisition and affiliation approaches. Approaches on either side of the line between “less than fully” and “fully integrated” models have distinct advantages and disadvantages.

Tool:
Degrees of Integration – The Pros and Cons

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