Trick or Treat.
I’m not sure if it’s a trick or a treat, but there’s no question that we’re seeing some interesting cooperative partnerships among hospitals and health systems. Last fall Sentara Healthcare, Novant Health, and MedStar Health united to form MNS Supply Chain Network, LLC. Although the groups are in reasonably close geographic proximity (Maryland, the Carolinas, Virginia) they’re not in significant competition in their respective markets.
The press release highlights the purchase of more than $3 billion in supplies and services across the new organization as motivation. Even the name indicates a focus on supply chain efficiency and volume-based contracting. On the face, this would seem to make sense in almost any industry, particularly one with decreasing margins and increasing regulation.
The announcement in June of a similar collaboration in Iowa had a slightly different tone – a healthcare alliance to advance care in addition to group purchasing power. The addition of buzzwords in the coverage such as “clinical integration” and “streamlined and coordinated care” put a different spin on things, although the groups were clear to state their plans to maintain their independence.
This makes a bit more sense since all the member organizations are located in a single state, particularly one that has a reputation for close-knit communities and a stable population. Over 70 percent of Iowa residents were born in Iowa. Anecdotally, my med school friends from Iowa assure me that there is some kind of force field that only allows them to leave for four years before they are pulled back to the heartland. Given the growth in Medicaid rolls across the country, this could be a very strategic move.
The Iowa plan specifically calls out plans to share “expertise and operational costs associated with development of ‘accountable care’ initiatives.” It also mentions “sharing the high costs of the information systems and experts needed to analyze clinical data and convert it into information that can be used by physicians and others to improve care and better manage populations of patients with chronic diseases.”
That surprised me a little, especially since at least one of the four organizations is part of a larger multi-state health system. Although a larger group would certainly be able to negotiate better deals on hardware, I’m not sure what the implications are for software.
Buying software isn’t like replacing a fleet of PCs or negotiating a better deal on linens. Especially when you’re dealing with health systems that are already the result of multiple mergers, there are tons of legacy systems to deal with. Looking at their histories and missions, these groups are not likely to be flush with cash or ready to rip and replace.
I hadn’t thought about these cooperatives much until this week when a colleague sent me notice of a deal in the Midwest that seems to be a hybrid of the previous two approaches. Four hospital systems in Missouri and Illinois have announced formation of The BJC Collaborative LLC. Participants include BJC HealthCare (St. Louis), St. Luke’s Health System (Kansas City), CoxHealth (Springfield, MO), and Memorial Health System (Springfield, IL). One system’s CEO explained the somewhat geographically disjointed arrangement: “It’s hard to do that with systems in your own community because they’re each working for their own advantages.”
There could be more to this partnership as well. St. Luke’s competitor Ascension Health is negotiating to sell two hospitals in Kansas City to HCA Midwest. BJC competitor Mercy is making some interesting moves in Missouri and Arkansas, one of which is to sell St. Joseph’s Mercy in Hot Springs to Capella Healthcare. Perhaps the collaboration is an attempt to shore up the walls against a for-profit incursion.
They’re clear to say it won’t impact how hospitals deal with insurance companies (no one likes to be accused of collusion or restraint of trade). Talking points again included supply chain, but information technology was also called out – there is a mix of Epic, Cerner, Allscripts, and McKesson in play among the participants.
One CEO stated that “backup servers, data warehousing, and disaster recovery systems” could potentially be shared. I’d love to see the architecture schematic of a backup data center for an organization like that, but I wouldn’t want to see the legal fees for the governance documentation it would take to make it a reality.
The increasing frequency and size of these arrangements certainly counts as a trend in my book. If you have information on who might be next, you know how much Mr. H, Inga, and I adore rumors and juicy tidbits. If you’re an insider at one of these collaboratives and want to share your thoughts, we’ll keep you anonymous. If you’re an outsider, what do you think? Are these arrangements good, bad, or indifferent? E-mail me.