Partnerships can grow your business if it isn’t time for a buyout or merger
October 1, 1999 6 minutes read
Partnerships can grow your business if it isn’t time for a buyout or merger
Rehab facilities reap benefits of expanding continuum-of-care services
If you can’t afford to buy out the other guy, and you’re not willing to merge your operations, then perhaps the best way to grow in the 21st century will be through partnerships.
It’s not a new concept, yet some rehabilitation hospitals are taking full advantage of this type of strategic move in interesting ways. For instance, some freestanding rehabilitation facilities are becoming partners with acute care hospitals, while others are joining forces with Easter Seals. When a rehab facility needs to expand due to managed care and Medicare prospective payment system pressures, administrators often will think in terms of starting the new service from scratch or opening a new site in a growth area. Or they look into expanding through buying a business, says Cecily Lohmar, CHC, partner in Arista Associates, a health care consulting firm in Fairfax, VA.
But forming a partnership might be a better move financially and strategically, especially if the expansion will involve a totally new service for the facility or if the new service is a high-risk one, she says.
"Maybe the service is not a big profit-maker, but you want to have it to increase your continuum of care," Lohmar adds. "The service is not something you have to have, but it’s good to have, and that’s when a partnership is worth looking at."
Partnerships also may be your best strategy when your market is highly competitive, and other players either don’t want to sell or are asking for too much money. For instance, Chambers burg (PA) Hospital, an affiliate of Summit Health in Chambersburg, has formed partnerships when potential competitors’ existing services can’t be bought or easily duplicated.
"Our partnership is with a national organization that, by any means, would not allow us to buy them. So it’s more of a collaborative effort because we don’t really want to be competing for the same population," says Barrie Sheffler, administrative director of physical medicine for Chambersburg Hospital, which has 28 acute rehab beds and 18 skilled rehab beds. The hospital has tried various strategies to expand its services, including creating new businesses and buying others. (See story on Chambersburg’s expansion experiences, p. 128.)
Sometimes a partnership occurs as easily as the magical first meeting between two people who know they’re intended to marry. For example, Nashville (TN) Rehabilitation Hospital recently formed a joint venture partnership with Easter Seals Tennessee. Their mutual attraction, needs, and compatibility were apparent from the start.
"We had evaluated our outpatient operations at our hospital main campus, and our evaluation told us we’re pretty well maximizing our current location for outpatient services," says Touby Witzky, chief financial officer of the 111-bed hospital.
Location, location, location . . .
"We wanted a location on the west side of the river, and Easter Seals was constructing a new center in west Nashville, where they wanted to offer physical services," Witzky says. "It just so happens that the operating officer over at Easter Seals was aware of our activities, and he thought we’d make a good fit as far as a partner."
Easter Seals has been actively courting these types of partnerships both in Nashville and other parts of the country. "Easter Seals is in various stages of upstart and proven success with joint ventures in six other locations, and a seventh one is in the works," says Ed Giannotti, chief operating officer for Easter Seals Tennessee in Nashville. (See story on the Nashville Easter Seals joint venture, p. 127.)
While the Nashville Rehabilitation Hospital-Easter Seals joint venture is off to a good start, not all partnerships have easy marriages. Usually such enterprises require a great deal of preparation and planning. Lohmar offers these guidelines to forming a successful partnership:
1. Be clear about your objectives. Before beginning to search for a partner, make sure you know why you want to do so and what your partnership goals will be, Lohmar advises. "There’s a lot of prep work people need to go through before they start approaching a partner," she says. "I’ve seen a lot of partnerships formed for the wrong reasons or because the opportunity came up and they said, It must be a good idea so I have to do it,’ and they didn’t really achieve anything."
For example, ask yourself these questions:
• Are we doing this to expand our market area?
• Do we hope to add services we otherwise might not have?
• Are we doing this to gain prestige?
Then weigh your partnership needs with your desires:
• Which objectives are negotiable, and which are nonnegotiable? "Determine what you have to have in this relationship," Lohmar says. "Maybe I have to make sure I have control over X-Y-Z, and if I get A-B-C, it’s like gravy and it’d be great to have if we could get it, but it’s not a deal breaker."
• What will be your measure of success, and what are the added benefits?
• What is a requirement, and what is merely a desire or wish?
2. Identify potential partners. "Next you need to see who’s in the market that you could partner with," Lohmar says. "Even if someone approaches you and says they want to partner with you, still look at different options to see who would be the best kind of partner."
While you may want a partnership with an organization that has a similar value system to yours, you don’t necessarily want an identical environment. You want one that is targeted to the market you’re trying to serve. If you serve an elderly market, for instance, you may have a slower-paced environment than if you serve a younger, sports medicine market.
Find out what the referring physicians think of a potential partner, and evaluate the partner’s track record with regard to its business approach and quality of care, Lohmar says. "Are they thriving or on the skids? — and you can usually tell. Are they expanding, or is their facility old and needs to be worked on?"
Lohmar suggests administrators use a checklist to help them evaluate potential partners. Simply list the features that will be important in a partner, including culture, image, market position, financial position, and track record. After each potential partner’s name, give a numeric score for each of those categories, totaling them at the end of the chart. The numeric score could be a simple 1 for low, 2 for medium, and 3 for high.
Once you identify a potential partner, it’s time to evaluate what your facility can offer in return. It’s likely your candidate will want to know your market position, your management and clinical expertise, your financial status, your market presence, and your access to payers.
"Determine their interests, and find out what they’re looking to get out of the partnership," Lohmar says. "Obviously, both sides need to win on the deal, and that’s what you need to convey to your partner."
3. Evaluate different models. After finding a partner, you need to determine how to structure the partnership. For instance, if both parties want more autonomy, then an affiliate partnership would work best. An affiliate partnership is a more informal relationship, such as an agreement to work together, but it is not a formal merger and each entity maintains its autonomy. If control is an issue, a merger might be necessary.
Again, it might help to use a scoring tool to weigh the various options. The chart’s columns might include these criteria: continued ownership, image/name, financial return, effect on position, strategic fit, and staff opportunities. Compare the relative benefits of each of those criteria in various partnership models, including different types of joint ventures, an affiliate model, and others.
4. Make the relationship work. The last step involves making sure your objectives are clear and continually asking whether you’re meeting them.
Other important implementation strategies include the following:
• developing policies, agreements, and other legal/organizational documents;
• developing a systems and support;
• starting small;
• evaluating every step against your objectives;
• modifying when needed and proceeding with the plan.
"When you structure a partnership, you need to know what it’s going to do before you structure it, and you need to know what it’s purpose is," Lohmar says. "The other pieces are just communication, checkpoints along the way, and both parties having a vested interest in making it work."
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