Sitting in the board rooms of many of these organizations and having the privilege of working alongside the senior executives and board members who are in the trenches on a daily basis, ECG Management Consultants’ Mergers, Acquisitions, and Partnerships practice and Polsinelli’s Healthcare M&A practice have learned many lessons—both from successes and challenges. These lessons should be considered by all stakeholders—board members, management teams, physician leaders, etc.—of independent hospitals/health systems that are contemplating their long-term strategic partnership alternatives and ultimately seeking to optimize the outcome of a potential partnership process that will secure and enhance healthcare delivery in their communities.
Lesson 1 — Choosing an appropriate partnership model … for the present and the future: An independent hospital/health system can have a great deal of influence over the affiliation model that is chosen by communicating clear and strong preferences to potential suitors. That stated, it is important for an organization to keep an open mind and avoid the desire to choose a model simply because it is the path of least resistance or is most likely to win over stakeholders. For instance, choosing a loose affiliation model with the plan to fully integrate at a later date if things go well may ultimately harm the organization by reducing the leverage held at the time suitors are initially approached. Once any form of affiliation is in place, it will be difficult to “unscramble the egg,” and the organization may have little remaining negotiating power when it comes time to fully integrate with a partner. However, certain circumstances warrant a looser form of affiliation at the outset, particularly when full integration is conditioned upon the chosen partner meeting certain performance criteria. Competent legal counsel and financial advisers can aid an organization’s board and management team in weighing these considerations to develop the most ideal affiliation model.