combining forces to manage the continuum of care

* Increasing bad-debt expense (an increase from prior period of more than 10 percent)

* Weak operating cash flow margin (less than 6 percent) and a downward trend

* Depreciation outpacing capital expenditures (two consecutive years)

* Low number of days cash on hand (less than 90 days) and a downward trend

Operational red flags include:

* Ayear-over-year decline in inpatient/ outpatient volumes

* A decrease in market share

* FTEs per adjusted patient day exceeding regional averages

* Compliance or accreditation problems

* Loss or realignment of key physicians

Planning for Integration

Once organizations perform a rigorous analysis and define the type of arrangement best suited for the benefit of all partners, participants in the arrangement should then plan for integration. True clinical and/or financial integration is not an automatic byproduct of organizational alignment. In fact, leaders often get caught up in the details of a transaction, leaving the matter of integration as an afterthought. The traditional affiliation/ merger process involves completing negotiations leading to a nonbinding letter of intent, conducting due diligence, finalizing deal terms, drafting definitive agreements, and then preparing integration plans. The time between the nonbinding letter of intent and the definitive agreements is typically several months. This is when integration planning should be in full force.

Planning for integration can be structured in a variety of ways depending on the size and perceived complexity of the arrangement. Regardless of the size, however, the project will require a steering committee, a central project coordinator or project management office (PMO), and teams responsible for completing various tasks (work groups). The exhibit below presents a sample project structure for the affiliation between a hospital and medical group.

The steering committee should consist of senior executives from all participant organizations, their respective legal counsel, and a facilitator. The steering committee's primary role will be to negotiate the overall transaction structure and discuss and make decisions on the recommendations put forth by the work groups. The steering committee also will provide additional directives relative to the planning process, as needed. These decisions and directives then will be communicated back to the work groups and other interested parties by the PMO through standardized communication and decision-management tools.

The PMO should oversee and manage the planning activities, including all work groups, and should be staffed with personnel who are experienced in healthcare affiliations. The PMO also will serve as a communication conduit between the steering committee and the work groups by interacting routinely with the work group leaders and facilitators. In addition, the PMO will set the steering committee's agendas, prepare meeting packets, and document key decisions.

Finally, work groups should be identified based on certain functional areas and be responsible for developing recommendations for the steering committee on key decisions pertaining to the definitive agreements and integration plans.

The Need for a Deliberative-and Unflinching-Approach

The transition to a CIN will require some form of affiliation for most healthcare providers. Yet the likelihood of success is severely reduced if there are not compelling reasons for an organization to pursue an affiliation. Each organization pursuing affiliation must have the capacity to progress beyond business as usual, both individually and in collaboration with partner organizations. To be successful, the newly formed relationship should be built upon compatible organizational styles and cultures, as well as mutual trust and respect. Finally, organizations pursuing affiliation should perform their due diligence in creating partnerships or networks that are sustainable and that result in actual integration of the deliveiy of care and the infrastructure that supports care delivery.

Effective affiliation planning requires a deliberative process that not only encourages innovative, forward thinking but also ensures candid discussion and clear resolution of issues and options. Advancement of the affiliation process is an active exercise. Leaders and facilitators should be willing to engage the most critical and substantive issues by having difficult conversations, challenging organizational biases, and analyzing available options. Only then can organizations confidently pursue and formalize consolidation or affiliation arrangements that will benefit all participants as well as the health of the population. *

AT A GLANCE

Many healthcare organizations are pursuing affiliation strategies to effectively manage population health. Healthcare organizations should take the following key steps in setting such a strategy:

> Ensuring the strategy aligns with the organization's mission

> Identifying potential partners

> Outlining expectations for the affiliation

> Assessing affiliation structure options

An important consideration is the additional value that successful affiliations bring to the market by increasing the capabilities of each partner.

Rarely do hospitals and physicians seek affiliations as a result of a single event. More commonly, a combination of forces and market factors make an affiliation increasingly necessary.

Thoughts on the Post-Acute Side of the Continuum

From the hospital or health system perspective, the clear focus of affiliation activities over the past several years has been on acute care services, ranging from alignment and integration of physician group practices to ambulatory care services and complementary acute care inpatient programs. Affiliation and integration with these high-value partners, although complex and often expensive, has been a critical step to achieving the Tripie Aim and adapting to reforms under the Affordable Care Act (ACA). Solidifying a provider network has been a priority, particularly in competitive urban environments where providers must be relevant in payer networks to effectively negotiate traditional and innovative contracts. As these acute care affiliations progress, providers should now look to the other end of the spectrum and reevaluate traditional post-acute care relationships.

With the expansion of insurance coverage and the need to deliver lower-cost services, acute care managers should refine operations and throughput to find additional ambulatory care and inpatient efficiencies, particularly in markets where expansion of Medicaid enrollment is most pronounced. Further, incentive payments for quality under Medicare and the "bundling" of acute and post-acute services necessitate stronger coordination and integration with post-acute care partners. Enhanced care management and protocols supported by robust information systems and reporting are providing acute care administrators with the tools to more effectively manage patients throughout this full continuum.</p>

Over the years, acute care providers have opted to include higher-margin services within the portfolio of programs and to close their skilled nursing facilities (SNFs) and home health programs or covert them to acute care services. In most cases, capacity within the market offered by independent SNFs and other long-term care centers provided access for discharge of postsurgical patients and those with other specialized chronic conditions. Generally, these vendor-like relationships have offered minimal coordination-of-care protocols and few incentives to optimize quality-based payments. This comparative lack of "systemness" is exacerbated by challenges in placing an increasing proportion of patients in specialized, transitional, and long-term care facilities.

Freestanding post-acute operators are similarly interested in deeper affiliations with acute care centers as a means to take advantage of enhanced reimbursement and innovative, accountable payment models. Over the past decade, longterm care facilities have attracted the attention of private equity investors. In general, these investors have seen an opportunity to buy into the provider marketplace at a comparative lower cost, aggregate this fragmented segment of the care delivery system, and begin realizing growth from the elderly cohort of the nation's population. Now, these operators are gaining the capacity and sophistication to step up and partner in wider affiliation initiatives, bolstered by the reforms of the ACA, which places greater value on lowercost care delivery, consumers' demand for quality and patient preferences, and specialized niche providers that can treat chronic conditions more efficiently.

Thoughtful analysis of the financial, operational, strategic, and political implications from deeper integration of postacute programs is recommended under evolving ACA reforms. Following this exercise, providers can assess whether opportunities to expand the organization's capacity of a fully integrated network can improve upon status-quo relationships. Acute care administrators are increasingly tasked with creating clinically integrated delivery networks and enhancing population health management competencies. Administrators should take the same approach to evaluating-and potentially investing in-affiliation structures and arrangements with preferred post-acute providers as they are with acute care partners.

Each organization pursuing affiliation must have the capacity to progress beyond business as usual, both individually and in collaboration with partner organizations.

About the authors

John N. Fink

is a senior manager, ECG Management Consultants, Inc., San Diego, and is a member of HFMA's San Diego Imperial Chapter ([email protected]).

Scott F. Burns

is a senior manager, ECG Management Consultants, Inc., San Diego, and a member of HFMA's Southern California Chapter ([email protected]).