The Right Time and Place for Affiliating

Some affiliations should move faster, some should slow down, and some will likely not move at all.

Many potential affiliations have merit — between health systems, between physician groups, between health systems and physician groups, between health systems and insurers, and other combinations. But what often separates them is timing and location.

As we write today, we know of two potential affiliations that need to move faster, three that have excellent potential but need to give themselves time to unfold, and two that need to be shelved. What determines which is which? These questions may help answer the question of when to affiliate, how to prioritize the options, and whether to speed up or slow down the process.

1. What are each organization’s affiliation needs? Maslow’s hierarchy of individual human needs (beginning with physical safety and going through self-actualization) 1 resonates for most of us. It’s useful to think of a parallel hierarchy for affiliations.

The needs for organizations don’t have to be the same in order for them to affiliate. (They seldom are the same when one looks deep enough.) But each does need to understand the other’s hierarchy of affiliating needs. In developing his theories, Maslow focused much of his research on studying “the best of the best” (e.g., the top 1% of college students, and the leading minds of his time).2 He recognized that he could get very different results if he analyzed individuals with serious problems or limitations. This principal also seems to apply to affiliations.

These examples show how the hierarchy of needs helps determine how and when affiliations develop.

Case Example A. An affiliation is proposed between a medium-sized health system seeking a partner to meet basic needs (including a capital infusion) and a much larger system that aspires to be much larger still. The two systems service areas are not close to each other – in physical location or in culture.

There is a tendency to move fast on this type of transaction. The smaller system needs cash. The larger system needs scale. Let’s get it done.

But smarter minds are beginning to proceed with care – to try to avoid rushing. There is a mismatch between the two systems on the affiliation hierarchy.
The larger system will of course ask, “Will this transaction be favorable in our overall financial roll-up of the system?” However, it will also likely ask, “Will this slow us down in our overall journey?” How will it fit in our journey with respect to governance, culture change, physician roles, volume to value transformation, and information system evolution? It may also in essence ask, “Will this affect ‘our journey to self-actualization’ as an overall system?”

The smaller system must ask, “What can stay the same for us, and what will have to change?” Smarter minds are also beginning to ask, “Will the smaller system leadership change itself – in essence, our own new journey to self-actualization – or will change be forced on us?”

Case Example B. Leaders of three physician groups realize they can do far more together than separately. Both groups perform well now, but they have higher aspirations.

Neither of these organizations has to change – there is no burning platform for change — but leaders can see the potential. This affiliation needs to be pushed to occur faster. The groups can learn from each other now. It will cost more to change later – in IT evolution, care delivery approaches, marketing, and compensation models. Now is the time to create a new joint vision of what the future can be.

Also, by coming together now, they create new opportunities for still more affiliations later – for example, with payers, health systems, vendors, and other physician groups.

2. What role will location play? Location shapes affiliation opportunities, whether we like it or not. They shape, and even create, some of our most intriguing opportunities. Consider these factors:

     • Most healthcare organizations need a local, national and regional affiliation strategy. The map of opportunities is different at each level.

     • Most pilot initiatives start locally – with individual leaders who can interact frequently. But many gain momentum when non-local ideas are traded and incorporated. Many of the resulting innovations can, with adjustments, go system-wide.

     • We tend to think of certain actions as local or national, but few are purely local or national.

     • The opportunities for affiliating are constantly evolving. Each organization must assess the cost/benefit of creating an affiliation, and the cost/benefit of changing it, or even destroying it, as opportunities shift.

For example:

Case Example C. A health system’s local affiliation opportunities are shifting. Its regional and national opportunities are also shifting. New decisions have to be made.

While every situation is different, the textbook solution is to sequence the system’s affiliation decisions. For example,

1. Do we need a capital partner? If so, we will negotiate this first.
2. What is our best opportunity for a clinical network at the regional level?
3. Given the answers to 1 and 2, what are our best arrangements for cost effectiveness in
other areas (including supply chain, revenue cycle, and telemedicine)?

3. What role will third parties need to play? Outside parties – other potential partners in the affiliation, regulators, community leaders, and others – frequently determine when an affiliation occurs, and sometimes determine whether it happens at all.

Case Example D. Four health systems can accomplish much together clinically. But one has to negotiate a financial infusion and one must deal with outside parties (regulators and others).
The textbook answer is to have the two systems that are ready to move go ahead without the other two. Hopefully, this encourages the other two systems to move quickly to join them.

The Next Affiliation Strategy

Affiliations are a powerful tool in “actualizing” an organization’s full potential. Meanwhile competitive, regulatory, political, and technical environments are affording new affiliation opportunities and constraints.
We need to think carefully not only about which affiliations will serve us best, but also on how to sequence our affiliation decisions. The fastest answers are not always going to be the best answers.
These three questions – what hierarchy of affiliation needs, what local and non-local options, and how third party issues and constraints factor in – may help.

About the authors
Keith Moore is CEO and Dean Coddington is a Senior Consultant with McManis Consulting. A version of this article appears in the June 2016 issue of HFM magazine.