Affiliations: A clear strategy

Many boards and executive teams of independent hospitals or health systems find themselves struggling with how to evaluate what role partnerships or affiliations should play in their organization’s strategy. These teams recognize the importance of evaluating their affiliation strategy options but are constrained in this effort by three factors at the board level. Those factors, when combined, make evaluating the organization’s true needs a strategic challenge, as management teams try to define a path forward without the board having a clear view of the destination.

The three factors in play are:

The fear of loss of local control: The most common concern among boards that are running into the affiliation question is a concern about local control. Frequently, their concern is that potential health care partners that are not part of the community served by the hospital or system will not have the community’s best interests at heart, potentially leading to a lack of service, access or other negative outcomes. 

Understanding the organization’s ability to thrive independently: “We can continue to remain independent” frequently is a difficult statement for board members to evaluate. Having enough understanding of the organization’s needs, its long-term strategic road map and its ability to execute on its strategy to draw a conclusion about an independent future is a difficult proposition. Commonly in this situation, “affiliation” largely becomes a cure-all term for multifaceted strategic challenges. It also becomes a binary proposition: We are independent or we are pursuing affiliation.

Complicating this discussion is a definitional issue: What does “independence” truly mean? What does “local control” entail? What does it mean to pursue an “affiliation”? In nearly every organization, these are questions that will be answered differently by members of the same board.

Understanding affiliation options: Often, boards struggle with understanding the availability of affiliation options — the various models in which hospitals can work with one another [see sidebar below]. Significant education (and time) is required to understand each of these models, their applicability to the organization and whether those models will help drive success as the organization defines it. This level of understanding is a challenge for hospitals given board schedules and other management priorities. Ultimately, as decisions need to be made, having a deeper understanding of potential affiliation options will be requisite to a successful process. 

Getting past each of these barriers is necessary for getting an organization on the right long-term path. To address these challenges, we recommend that the hospital board and leadership team undertake the following six steps to build consensus around the organization’s affiliation strategy:

Step 1

Create common definitions within the leadership team

As many hospital leadership teams have surely experienced, when it comes to “independence,” “local control,” “partnership” and “affiliation,” there are multiple definitions floating around the boardroom for each term.

“Independence,” for instance, can include definitions as disparate as “we control most of the decisions made at the leadership level, and we work closely with a number of other local, regional or national provider organizations to drive success for our community” and “we control all decision-making for our organization, with a closed medical staff and limited partnerships with other nonacute care providers.” The wide array of definitions that exists within a boardroom dampens discussion about future strategy, as leadership team members experience disconnects in debate and conversation. 

Similarly, “affiliation” is often seen as the opposite of “independent,” as opposed to an array of potential arrangements with one or more provider organization partners that may affect local control and decision-making while helping the organization achieve its goals. A complicating factor is the negativity around the term affiliation, which can drive leadership discussion away from the topic. For better or worse, affiliation is commonly viewed as giving up or giving in to the competition, or a general failure of hospital leadership to guide the organization on a successful path. 

To address such concerns, the leadership team should perform an exercise designed to bring common definitions for these terms to the boardroom. Have each member define “independence,” “sustainability of the organization,” “local control,” “affiliation” and “partnership.” Reconcile these definitions and create a common one for use in future leadership team discussions. 

Step 2

Define the board’s nonnegotiables

With common definitions for “affiliation” and other terms in place, the organization must next determine the leadership team’s positions on what is acceptable from the board’s perspective. Most commonly, the biggest nonnegotiable is a loss of local control of decision-making. With a common definition for local decision-making in place, however, digging into what this means and what parts of it are truly not negotiable become an easier process.

Further education for the board may be required relating to the array of affiliation options available to the organization in the future. A mixture of education and discussion should be used to explore, and then explicitly define, what options are truly nonnegotiable, which are not ideal and which are within the board's realm of comfort. As an exploration of affiliations moves forward, these definitions will help ensure that the process moves smoothly as more concrete steps are taken.

Step 3

Build the vision for independence

To obtain a true evaluation of affiliation needs, the hospital must also develop a vision that defines its path to sustainability and then work backward, determining whether the capabilities and resources needed are realistic for the organization to execute the plan. 

While resource availability to address patient needs will always be a core driver of affiliation strategy, in this process the organization should also consider core strategic issues that drive hospital viability, such as:

• Provider supply and ability to recruit — including the development of a robust primary care base, specialty manpower and depth of capability.
• Geographic reach — focused on the ability of the organization to meet the needs of the population in its service area with sufficient access to care.
• Provider network management — including the personnel capabilities to operate an employed physician network or clinically integrated network.
• Population health capabilities — including the ability to develop competencies in managing care and producing high-quality outcomes that the field seeks, with a special focus on the organization’s ability to invest in infrastructure (especially information technology) to facilitate the development of these capabilities. 

Step 4

Evaluate internal competencies and resources

Once the vision is complete, the organization must develop an honest self-assessment of its ability to execute that vision. Gaps in the ability of the hospital or health system to execute the vision developed in Step 3 become the basis of discussions with other hospitals or systems about affiliations in Step 5. These discussions happen within the context of what the organization is willing to give up — ensuring maximum retention of local control while focusing affiliation discussions strongly on partnership, not acquisition. Overall, such an honest evaluation moves board discussion away from an all-or-nothing approach and instead focuses the organization on getting what it needs without violating the nonnegotiables. 

To perform this self-assessment, the board should review the plan critically upon its completion. Common questions to ask of leadership as part of this process include:

• What competencies must we have to execute each strategy?
• Do we have the resources we need to develop and strengthen those competencies?
• What challenges will occur as we try to acquire those resources?
• Do we have the internal capabilities to execute this plan?
• How realistic is success?
• What metrics will we use to judge whether we are creating success for the organization?

The answers to these questions will create a crystal-clear picture of what, if anything, the organization will need out of an affiliation strategy.

Step 5

Determine affiliation strategy to address organizational needs

With an honest evaluation of the organization’s capabilities and resources in place, the board should use information gathered from the previous steps to develop an effective request for information. This document communicates the hospital’s needs to potential partners as part of an affiliation strategy. 

The RFI must be streamlined around the core needs of the organization. As such, the organization will see a number of potential benefits as it communicates the RFI to potential partners:

• The organization will be in a stronger position in its negotiations with potential partners, given that it is asking for assistance with a defined number of critical items rather than a more general request for affiliation information. Organizations that have not gone through a process to specifically define their core needs often submit more general affiliation RFIs, which at their core ask, “How can you help us?” This oversight results in the responding organizations being general in their responses and focusing more on replicating the same relationships that they have created with other organizations regardless of whether those situations are beneficial to the requesting organization.
• When needs are defined, the affiliation process will move much more quickly. Whereas a more general affiliation discussion can drag on for multiple quarters, if not years, a targeted discussion can quickly get the hospital to the right people in the targeted organizations and facilitate quicker discussions and resolutions. 
• The board approval process within the hospital should move much more quickly, as the work of vetting (“Are we comfortable with this?” and “What are we getting out of it?”) has largely been completed before the RFI goes out. 

Step 6

Evaluate partners and execute the strategy

The organization should now be fully prepared to submit an effective RFI. Once the board has vetted potential partners, the hospital should be ready to move forward with its plan.

Execution of all these steps is necessary in obtaining the right affiliation strategy for the organization. Following this process results in the organization's being able to define an affiliation partner that can assist it in meeting its strategic goals while minimizing loss of control and staying within the board's nonnegotiables. Ultimately, pursuing this process will put the organization on an optimal path toward serving its community’s needs.

Travis Ansel (tansel@hsgadvisors.com) is a partner with HSG in Louisville, Ky.

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Affiliation options

• Clinical affiliation models (i.e., branding, shared resources).
• Collaborative models (i.e., regional and statewide networks).
• Population management network models (e.g., accountable care organizations).
• Affiliation network models (e.g., clinically integrated networks).
• Mergers and acquisitions.
• Management agreements.

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Trustee takeaways: Building consensus

When a hospital board is developing its affiliation strategy, trustees may sometimes not be in agreement. Here are some quick tips to achieve consensus:

Step 1: Create common definitions within the leadership team. Break down barriers to productive discussions by getting a common set of definitions for “independence,” “partnership,” “affiliation” and any other commonly used terms in the boardroom when discussing the hospital’s path forward as an independent organization.

Step 2: Define the board’s nonnegotiables. Document what is critically important to the board so that future strategic discussions can be built to avoid pathways that will be nonstarters for the board.

Step 3: Build the vision for independence. Work collaboratively to build a strategic vision, defining how the hospital or health system will be successful and remain independent.

Step 4: Evaluate internal competencies and resources. Evaluate the organization’s ability to execute the strategic vision given its current capabilities and availability of resources, and then define what gaps cannot be addressed realistically without outside assistance.

Step 5: Determine an affiliation strategy to address organizational needs. Use the defined gaps in the ability to execute the strategic vision to define a request for information for affiliation strategy that meets the organization’s key needs — and nothing more.

Step 6: Evaluate partners and execute the strategy. Submit the RFI, vet potential affiliate partners, and move forward.