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An Alternative to Traditional M&A: Hospital Network Alliances

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PYA Principal David McMillan presented during The Knowledge Congress webinar, “The Impact of Healthcare Reform in M&A,” which discussed the fundamentals and significant developments related to mergers …

PYA Principal David McMillan presented during The Knowledge Congress webinar, “The Impact of Healthcare Reform in M&A,” which discussed the fundamentals and significant developments related to mergers and acquisitions (M&A) and healthcare reform and was designed to help healthcare executives and professionals avoid related, common pitfalls and risk issues. The webinar also explored hospital network alliances as an alternative to traditional M&A including.

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  • 1. July 22, 2014 31 David McMillan Principal Pershing Yoakley & Associates, P.C. An Alternative to Traditional M&A: Hospital Network Alliances David McMillan July 22, 2014
  • 2. Changing Role of the Community Hospital July 22, 2014 32 David McMillan Principal Pershing Yoakley & Associates, P.C. Today Tomorrow Maximize ability of healthcare services in the community Physician recruitment and retention Ensure essential emergent and acute care services; subsidize with profitable outpatient services Pillar of the community Population Health ManagementPopulation Health Management Future payment tied to assuming responsibility for covered lives Responsibility for entire care continuum, regardless of where and by whom care is delivered
  • 3. Traditional Affiliation Options July 22, 2014 33 David McMillan Principal Pershing Yoakley & Associates, P.C. CapitalInvestment Integration/Control (Acquired or Given Up)/Stability Clinical Affiliation Minority Investment Joint Venture Management Agreement Joint Operating Agreement Asset Purchase/Acquisition Lease Merger/ Membership Substitution Clinical Financial
  • 4. Drivers of New-Age Affiliations July 22, 2014 34 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 5. Collaborative Functions Supported by Collaborative Form Today’s Forms • Integrated Delivery Systems • Physician-Hospital Organizations • Independent Physician Associations • Accountable Care Organizations • Network Alliances July 22, 2014 35 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 6. Network Alliances • Two or more entities develop formal relationship to share unique resources and capabilities to create competitive advantage • Motivations – Achieve economies of scale – Design continuum of care – Develop narrow networks – Defend against competition from large systems – Test the waters for more “involved” relationship – Unwilling/unable to commit to traditional M&A • Participants together define their common interests to be advanced through the alliance • Maintains independence through interdependence July 22, 2014 36 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 7. Network Alliance: Five Stages July 22, 2014 37 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 8. Network Alliance: Developing the Strategy • Each participant’s individual interests are respected and protected through the alliance’s governance structure • Participants make some financial commitment to support the alliance’s operations, but each remains economically independent • Key Considerations: – Scope of their partner’s relationship – Form Follows Function: Function determines how Network Alliances are formed and governed – Secrets to success and dangers to avoid July 22, 2014 38 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 9. Network Alliance Case Study: Health Network of Missouri Purpose of Alliance: 1. Maintain Members’ commitment to serving local community needs through regional interdependence. 2. Provide better experience of care for individuals, improved health for populations, and lower per capita costs. 3. Develop regional identity and reputation for high quality patient-centered care. 4. Deliver value to healthcare consumers. July 22, 2014 39 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 10. Corporate Structure • Missouri Limited Liability Company • Equally co-owned by Members: – University of Missouri Health Care – Capital Region Medical Center – Lake Regional Health System – Bothwell Regional Health Center – Hannibal Regional Healthcare System • Equal capital investment by each • Effective on date of filing Articles of Organization July 22, 2014 40 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 11. Governance Structure • Managed by a Board of Managers comprised of: – Three Member Representatives each, chosen by the Member organization: • One from Management • One from Governance • One from Medical Staff – One vote for each Member on all matters as decided among the three Member representatives for each Member • Quorum = Super Majority (80%) • Voting = Majority, with listed exceptions requiring Super Majority or unanimity July 22, 2014 41 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 12. Voting Rights July 22, 2014 42 David McMillan Principal Pershing Yoakley & Associates, P.C. Super Majority Vote (80%) • Transaction with a Member • Indebtedness ≥ $50,000 • Dispose of all LLC property • Merger/Consolidation • Dissolve Company • Budget approval • Expenditures ≥ $50,000 Unanimous Vote • Amend organizational documents • Admit an additional Member • Expel a Member • Approve Network compacts • Approve payer agreements
  • 13. Committee Structure • Executive Committee • Audit/Finance Committee • Legal Compliance/Governance • Network Task Forces (Network Compacts) – Network Care Coordination Task Force – Network Population Health Management Task Force – Network Payor / Employer Initiatives Task Force • Alliance Initiatives Task Force (Member Contracts) • Advisory Committees July 22, 2014 43 David McMillan Principal Pershing Yoakley & Associates, P.C.
  • 14. Health Network of Missouri July 22, 2014 44
  • 15. 45 Summary Network Alliances achieve Independence through Interdependence by seeking Collaborative Functions of multiple organizations in a unique Collaborative Form For more information, please read our white paper and contact David McMillan dmcmillan@pyapc.com www.pyapc.com