Providence And Kaiser Permanente Partnership: A Blueprint To Expand Access To Care In Underserved Communities, Address Health Disparities, Overcome Social Determinants Of Health, And Mitigate Financial Risk.
A cursory analysis of trends in the healthcare industry reveals a steady dose of news related to Mergers and Acquisitions (M&A), partnerships, and collaboration. Despite the brief slowdown in early 2020 due to the pandemic, M&A, partnership, and collaboration activities in healthcare have seen a steady rise since the second half of 2020. Most of the activities focus on:
- Payers with the intent of creating differentiation among peers to gain competitive advantage, control costs, and influence outcomes and quality have turned towards acquiring Providers.
- Providers with strong financials, reputation, sizeable presence in local markets, and physicians are offering health plans.
- Payers and Providers acquiring or investing in technology or services companies.
The above does not even cover other activities such as tech companies acquiring health product companies or M&A among service Providers, pharma, and medical devices.
Yet, what gets lost in the din of big M&A deals are remarkable partnerships such as:
- “Living Health,” a multi-year partnership between Google and Highmark to deliver more proactive and personalized health care, including a new clinical insights platform1.
- “Truveta,” a healthcare data startup backed by Tenet, Providence, and Common Spirit along with a total of 17 other health systems, reinforces the vitality of partnerships2.
- Mayo Clinic partnered with Google for digital transformation to advance cloud computing, data analytics, machine learning, and artificial intelligence3.
- A multi-year strategic partnership between Humana and Microsoft to reimagine healthcare4.
While large deals and big players garner all the news, a seemingly innocuous article titled “Providence-KP Team Up to Attract Patients in California’s Growing High Desert Region” begs further analysis5.
On the surface, the affiliation between two large and well-known providers, Providence and Kaiser Permanente (technically, KP is both a Payer and Provider), seems opportunistic. But dig deeper, and there is much more to analyze. So, what drove the need for this partnership? Is it a sustainable model? Are there any downsides, and more importantly, is this a harbinger of things?
Why should providers partner with each other?
A few good reasons for this type of partnership include:
- Capital: the cost of setting up a brand-new hospital is estimated to be more than $1 billion, and in states like California, the cost of retrofitting hospitals for earthquake-proofing often exceeds the cost of new construction—making it economical to build a new hospital rather than undertake a costly retrofit.
- Cost: like revenues, labor expenses grew by almost 23%, and non-labor expenses grew by 25% between 2014 and 2018. Partnerships can help share the financial burden6.
- Revenue: between 2014 and 2018, while hospital revenues increased by about 22%, operating revenues also increased by about 20%. Partnerships can funnel revenue increases due to combined brand power and synergies6*.
- Market Share: serve a larger patient population across geographical areas and communities that are experiencing population growth.
- Competition: compete and gain a competitive advantage over other players in the local market (In this case, Desert Valley and Prime Healthcare).
- Appeal: enhance appeal to employers, a key constituent of the healthcare ecosystem, by increasing the hospital and physician network.
- Branding: brand uplift through mutual association built on individual strengths and competencies.
Downsides
While the potential benefits may outweigh the downsides, there are key concerns that need to be addressed for this model to be sustainable. Some of the key concerns are:
- Service impact
- Closure of existing facilities coupled with streamlining of services at the combined entity led to an overall reduction in services.
- Directives of either partner may restrict access to certain services, typically around reproductive services.
- Workload impact
- Impact on physicians who may have to serve a much diverse patient population.
- Need to use multiple Electronic Medical Records (EMR) and other IT Systems.
- Economic impact
- Closures or curtailment of services led to negative economic impacts such as job losses and associated impacts on local businesses.
- Increased commute/driving for patients to avail services.
- Regulatory and compliance
- Increase scrutiny by regulators and lawmakers.
Conclusion
Hospitals are facing challenges at unprecedented levels, whether it is the shift to value-based care, declining reimbursements, new/updated regulations such as the two-midnight rule, etc. Add to this the capital-intensive nature of the business, and the need for partnerships is self-explanatory. If potential downsides that arise in a partnership between major hospital players can be managed, the partnership has the potential to provide a blueprint for future operating models while solving for cost, competition, and brand; such partnerships also increase access to best-in-class healthcare.
Sources
- https://hitinfrastructure.com/news/highmark-health-builds-on-google-cloud-partnership-for-better-care
- https://www.fiercehealthcare.com/tech/tenet-providence-other-health-giants-band-together-to-form-new-health-data-startup
- https://newsnetwork.mayoclinic.org/discussion/mayo-clinic-selects-google-as-strategic-partner-for-health-care-innovation-cloud-computing/
- https://www.forbes.com/sites/brucejapsen/2019/10/21/microsoft-humana-partner-to-reimagine-healthcare-for-aging-boomers/
- https://khn.org/news/article/providence-kp-team-up-to-attract-patients-in-californias-growing-high-desert-region/
- https://data.chhs.ca.gov/dataset/hospital-annual-financial-data-selected-data-pivot-tables/resource/baa572d1-0fde-4ebb-b734-c6588c50e3c5
Latest Blogs
In today's digital era, ransomware attacks and other cyber threats are more prevalent than…
In the evolving landscape of technology, the rise of quantum computing stands out as a frontier…
In contemporary corporate landscapes, the pursuit of human resources (HR) transformation remains…
In the dynamic realm of big data, advanced analytics, and artificial intelligence, the strategic…