Those who must, merge. Those with a healthy margin, collaborate.
South County Hospital Healthcare Systems has abandoned its quest to merge with a larger system, and now wants to find a partner that will specifically share in population management under evolving risk-based insurance products.
While administrators have yet to announce the details of what they’re hoping for in a partner, hospital President and CEO Lou Giancola said it could mean working with local groups to create a new system that would work directly with insurers.
“Right now, we’re not going out seeking a partner with which to merge,” Giancola said. “For the time-being, we’re more interested in collaborating with other systems to be able to offer care … under these new financing schemes, as opposed to necessarily joining a larger system.”
While the move illustrates the resolutely upward trend of nationwide health care consolidation, the nonprofit hospital is also demonstrating how financially stable entities have more freedom to leverage their ideal partnerships.
South County Hospital, the last independent hospital in Rhode Island, started looking for a network partner about two years ago. While the facility’s margins were healthy, the hospital wanted to get ahead of pressure from nationwide insurance trends and find a network before it needed one.
A national emphasis on population health management – nudged along by the unfurling Affordable Care Act – has pushed insurers toward a performance-based reimbursement model rather than the fee-for-service system that long dominated the industry.
“If you provided a service, you got paid for it, and if you provided more services, you got paid even more,” said Michael Souza, president of the Hospital Association of Rhode Island. “Now the movement is really toward managing the patient.”
Since value-based reimbursements are dispersed at flat calculated rates, the model can incentivize providers to try improving overall population health. But it also applies pressure on small organizations to join larger networks.
These factors were considered when South County started its search for a partner. In December 2013, trustees invited the Lifespan hospital network, Care New England Health System, Lawrence + Memorial Hospital and Southcoast Health System to consider a partnership. Ultimately, South County entered six months of exclusive talks with Southcoast. Last month, however, the two groups announced that a deal wasn’t going to happen, citing an inability to combine in a way that would “enhance services for the community,” according to a South County press release.
South County’s leadership has now set its sights on forming a new kind of partnership.
“Most of the time when a hospital affiliates with a system, it involves the larger entity … becoming the owner of the smaller entity,” Giancola said. “We’re looking to work with other systems to either participate in an existing network or create a new network.”
While the differences in joining a network and participating in a network may seem semantic, remaining independent would allow South County to remain autonomous. Healthy finances give the organization a good deal of freedom to position themselves in potential partnerships. They don’t need an influx of capital-improvement cash, and they’re well-placed geographically – all reasons not to rush into a merger.
“They’re not like in Providence or Boston or New York,” Souza said. “They don’t really have a lot of competition for the health care business.”
When hospitals collaborate without merging, it’s often along a particular service or venture, as with Southcoast’s joint pediatric venture with Boston Children’s Hospital based from St. Luke’s Hospital in New Bedford.
While South County isn’t ruling out practice-based collaborations, Giancola said the hospital is primarily looking for a partner to share risk from insurers.
Giancola said while he didn’t have details on how this collaboration would be patterned, forming a new system altogether is a possibility.
“It could be the formation of a joint venture … specifically for this purpose, under which we might jointly contract with an insurer,” he said.
Such a partnership could potentially allow South County to remain independent but pool its risk with another organization, spreading losses incurred from high-cost patients and procedures over a larger population. Giancola said hospital trustees have not yet decided on any sort of timeline, and have not yet designated any particular potential partners.
“Our general position is that we’re going to keep an open mind to see if an appropriate relationship evolves naturally or more organically,” he said. “But I don’t think at this point we are actively seeking the type of relationship that we were working on with Southcoast.”
Southcoast spokesman Peter Cohenno said the organization doesn’t have a stance on potential future collaborations. Lifespan spokeswoman Gail Leach Carvelli said that the hospital had indicated it wasn’t interested in pursuing a strategic partner. Care New England representatives did not return calls for comment.
Major health insurers are also part of the equation.
UnitedHealthcare of New England spokeswoman Maria Gordon Shydlo released a statement saying that the company is committed to expanding value-based contracting in Rhode Island.
“For hospitals and physician groups that are not in performance-based agreements … we continue to look for ways to help move them to the point where we collaboratively can enter broader risk-sharing agreements with the continued goal of improving care, increasing satisfaction and seeing some affordability gains through incremental changes,” Gordon Shydlo said in an email. •
