Blog Post

Affiliations: Alternatives to Mergers and Acquisitions

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The challenges facing many healthcare organizations today require enterprise wide strategic planning efforts addressing issues that profoundly impact the organization’s vision and organizational structure. Health systems, hospitals, and medical groups are considering merger and acquisition options to address the increased importance of scale and scope of services. But they are also concerned about the potential to lose their autonomy, history, and focus on their community that may accompany such a transaction.

Merging, acquiring, or being acquired are not the only options. Affiliations have become an attractive alternative to overcome the challenges facing many healthcare organizations. Whether your affiliation objectives are to better integrate care in the community, eliminate duplicative services and costs, or allow you to focus on what you do best rather than trying to be all things to all people, a thorough assessment of the available alternatives and their potential outcome will allow for an enlightened decision. Organizations considering new affiliations should take the steps below:

  • Clearly define the objectives of pursuing an affiliation
  • Assess potential affiliations for your organization by developing the following:
    • Evaluation criteria. Define weighted evaluation criteria to rank potential affiliates based on your organization’s vision and goals
    • Potential affiliate profiles. Gain a better understanding of potential partner organizations, their strengths, and any obstacles to working together.Affiliate ranking. Rank each potential affiliate based on the ability of an affiliation to support your evaluation criteria.
    • Affiliation activity. Evaluate the likelihood of other affiliations, mergers, and acquisitions in the local market and the implications to the market and your organization
    • Scenario planning. Define a small number of scenarios under a variety of affiliation options and project the likely outcome of each
  • Identify your preferred strategy based on each potential scenario, including whether you should act now or wait

Once you have identified your preferred affiliation partner, it’s necessary to develop a mutually agreeable design for the affiliation. This effort will typically involve five steps:

  • Establish a shared vision for the strategic direction and goals for the affiliation
  • Define the affiliation’s structure and the initiatives that will be pursued under it
  • Estimate the financial and operational impact on each organization
  • Examine transition implications related to the affiliation (e.g., ownership changes and transactions, transfers of assets, service agreements, and physician relationships)
  • Prepare a term sheet that specifies the desired vision, goals, conditions, and guidelines of the desired affiliation

There is comfort in participating in a trend. And there is comfort in maintaining your organization’s core identity, mission, and values. Consider an affiliation to allow you to do both.

This post was originally featured on the hfm Healthcare Finance Blog - November 12, 2012.