Aligning Children’s Hospitals and Health Systems

The prospect of health reform once loomed like storm clouds on the horizon – dark, mammoth, and all but inevitable. Regardless, industry leaders uncertain about the scale of the impact sensed the changing climate and began preparing. As a result, between 2009 and 2012, mergers and acquisitions doubled ^[1] as hospital and health system leaders sought to offset challenges such as access to capital, low margins, and increased competition. It’s a trend that’s expected to continue as the ACA nears full implementation and reform mandates take hold, pushing the industry toward an environment based on population health management (PHM). Just this week, the U.S. Department of Health & Human Services announced plans to tie 30% of fee-for-service Medicare payments to care quality, through models such as accountable care organizations or bundled payment programs, by the end of 2016.

For a time, these shifting market dynamics had little effect on children’s hospitals. But pediatric providers are no longer immune to the pressures of health reform, and while many children’s hospitals have traditionally practiced patient-centered care, few have experience in assuming financial risk for their patient populations. Further, children’s hospitals’ narrow patient scope makes it especially difficult for them to develop some of the core competencies necessary to thrive in a risk-based operating environment – most notably, market scale and clinical service distribution.

Acquiring these competencies means either building them internally or aligning with other market participants. Given that it’s considerably quicker and easier for children’s hospitals to partner with adult-oriented organizations than to develop these services themselves, many are pursuing affiliation agreements with larger health systems in their local/regional market. These relationships enable children’s hospitals to mitigate capacity demands, expand risk across a broader patient population, and manage the health of the population past the age of 18.

And just as children’s hospitals are challenged in their ability to manage financial risk and treat their young patients into adulthood, meeting the needs of the pediatric population is a significant weakness for most general acute-care hospitals. Such deficiency is untenable in a market that distinguishes high-performing organizations by their ability to manage the health of a population across the continuum of care. That makes children’s hospitals, with their unparalleled expertise in the under-18 population, a critical collaborator for any robust clinically integrated network.

Children’s hospitals occupy a unique market position that makes them at once vulnerable and indispensable. Those that expect to thrive in a value-based operating environment need to take an honest look at their ability to develop core competencies, while also recognizing the tremendous value they bring to partnerships and affiliations with adult hospitals and health systems. These nonconventional collaborations carry their share of challenges and questions, but they also bring opportunities. And while the forecast for transformational change in the healthcare market remains uncertain, providers that pursue strategic alignment will not only weather the storm but position themselves to thrive under any conditions.

This post is the second in a four-part series that explores ways in which children’s hospitals are forming collaborative partnerships with physicians, health systems, academic affiliates, and research partners to thrive in a value-based healthcare environment. To learn more about the alignment strategies that children’s hospitals are exploring in the healthcare reform environment, see ECG’s white paper titled How Collaboration Can Drive Success at Your Children’s Hospital.