PNA activity has undoubtedly increased since the global financial crisis of 2009, as organizations respond to stagnating revenues and increasing quality requirements.
Across the KPMG global network, we see a pattern of success where organizations work from a clear strategy and agreed opportunities, and failure where hasty attempts at merger and acquisitions are driven by the pursuit of cost savings without a coherent narrative or deeper vision.
The US offers some particularly interesting stories of success and failure. According to Marianne Udow-Phillips, Director of the Centre for Healthcare Research, a partnership of the University of Michigan and Blue Cross Blue Shield Michigan, organizations are responding to price competition and, “the need to diversify and expand their offerings” through merger and acquisition, alliances and partnerships with community hospitals. The number of M&A transactions in the US has risen from 56 in 2002 to 105 in 2012. Many of these involved academic medical centers (AMCs).1
Murray and Burch, identify three main strategies US AMCs are taking: “anchoring multi-hospital integrated networks; pursuing partnerships with large non-academic systems; or staying independent while entering into affiliations to achieve aspects of their mission.”2
Some of these approaches have struggled to work. A number of institutions have incurred a downgrade in their performance ratings (e.g. University of Michigan Health System, University of Massachusetts Memorial Healthcare, and Temple University Health System in Philadelphia). Others have been more effective.
One highly successful example that stands out is Yale New Haven Health System (YNHHS). YNHHS has a long history of successfully acquiring and integrating organizations. From a standalone academic medical center in the 1970s, it has steadily acquired physician groups and hospitals.
Most recently, it took control of the 500- bed Catholic Hospital of San Raphael — a century old community hospital with a strong history and culture. Consistent with its thinking about successful integrations, YNHHS focused on cultural alignment of the two entities. As the President and CEO, Marna P. Borgstrom, explains: “We did not want the acquired organization to experience the vacuum that can come from pulling it into the primary academic medical center, nor did we want to lose the legacy, values and heritage of this wonderful Catholic organization. We undertook a concerted effort to align both hospitals’ values as an integrated organization. As we thought about it, we realized that this ought to include the others in our system: our physicians, the medical foundation, and our other hospitals.”3
The outcomes have been impressive. Since the acquisition in 2012, a strong regionally integrated hospital network has developed alongside a similarly strong integrated physician network. The organization’s revenue growth rate has remained high (10.3 percent CAGR over 13 years to 2013), it has absorbed US$549 million of ‘free care’, Medicare and Medicaid shortfalls and bad debts in 2013 alone, and has averaged over 150 liquidity days between 2008 and 2013.
Children’s hospital networks are another strikingly successful example of PNAs in the US. The Children’s Hospital of Philadelphia (CHOP) and Boston Children’s Hospital have built up an effective mixture of physician networks, extending well beyond the walls of their hub hospitals into primary and community care, satellite services and partner hospitals.
The Children’s Hospital Association of America notes that regionalization strategies such as these have been developing across many states in the last decade.4 Initiators of these strategies like CHOP have used regional networks to sustain and improve their position, remain highly profitable and relevant to local communities in Pennsylvania and New Jersey.
This success contrasts with leading children’s hospitals in Canada or the UK. Given the single payer nature of these systems, we would expect strong service integration. Yet Sick Kids Hospital in Toronto is looking to reinvigorate children’s service networks that have existed for more than a decade and are not thought to be sufficiently active.
In England, attempts to reorganize tertiary children’s services such as cardiac surgery have been derailed by strong opposition from potential ‘losers’. Attempts by large tertiary centers to extend into secondary care have also not been successful, such as Great Ormond Street Hospital’s attempt to support emergency services in north London.
Those that have bucked this trend show that it is consistent, clear and committed strategy over many years which makes the difference between success and failure. Many leaders succumb to the temptation to overhaul structures and systems overnight. Such strategies are fraught with risk.
The 30 year expansion story of the University Health Network (UHN) in Toronto, is far less dramatic than many other systems and has allowed PNAs to develop based on a firm foundation of trust and shared vision. Dr Robert Bell, former CEO of UHN, sees the development of the UHN mission as subtly evolving through this history, and although this journey is still not wholly complete, both the KPMG ratings methodology, and the Academic Ranking of World Universities puts it in the top ten academic health science centers globally.5
The UHN story is quiet and prosaic when set alongside more seismic stories in other health systems. But that is the point. It is progress without fuss.
In 1986, the Toronto Western Hospital merged with the Toronto General Hospital, becoming the Toronto Hospital. On 1 January 1998, the Toronto Hospital was amalgamated with the Ontario Cancer Institute/Princess Margaret Hospital, In April 1999, the name was officially changed to the University Health Network (UHN). On July 1, 2011, UHN integrated with the Toronto Rehab Institute, a move which has physically expanded to eight locations around the city and allows it to better serve patients by bringing together acute hospital care with the rehabilitation care that so frequently follows a hospital stay.
The journey continues: A variety of other partnerships have formed. Most recently, with the Kuwait Cancer Centre for the education and training of Kuwaiti doctors.
1Udow-Phillips, Marianne, quoted in Herman, Bob. Wave of consolidation rumbles toward Academic Medical Centres. ProQuest. 11 Jan 2015.
2Murray, Jan and Burch, Kathleen. Recent trends in Academic Medical Center mergers, acquisitions and affiliations. ProQuest. 11 Jan 2015.
3Marna P. Borgstrom. Interview by Stephen J. O’Connor. Journal of Healthcare Management. Vol 59, No 2 March/April 2014.
4Developing local to international hospital markets. Children’s Hospital Association 2008. Accessed on 14th November 2014.
5Lange Joep, Schellekens Onno, de Beer Ingrid, Lindner Marianne E, van der Gaag Jacques. Public-private partnerships and new models of healthcare access. In Current Opinion in HIV and AIDs. 3(4), 2008.