Editor's note: H&HN Staff Writer Marty Stempniak is blogging this week from the Hospital Financial Management Association's National Institute 2012.

 

LAS VEGAS — Several years ago, James Haden's hospital was about to embark on a strategic planning process, with a brand-new facility looming on the horizon. The hospital board was asked if they wanted to stay independent forever, and nearly everyone at the table raised their hand. But one board member flipped it.

"Is that the right question to ask? Can we be a better hospital with the right partner than we can be by ourselves?" recalled Haden, the president and CEO of 176-bed Martha Jefferson Hospital in Charlottesville, Va.

That anecdote came up Monday morning as part of a two-person panel discussion at the HFMA's National Institute 2012, in Las Vegas. Participants included Haden, whose hospital eventually did pull the trigger on a merger, along with Michael Lauf, the president and CEO of Cape Cod Healthcare, who saw his hospital explore the same question, but fail to find the right fit.

In the past decade, hospitals, especially financially distressed community ones, have pursued mergers and acquisitions out of anxiety, some seeking capital to invest in their facilities. But the nature of mergers is changing, and more often industry players are exploring the idea strategically, eyeing partners to help move along quality initiatives or build up a brand name, Kit Kamholz, managing director of consulting firm Kaufman, Hall & Associates and moderator of the session, told attendees.

His firm has seen an uptick in the number of hospital transactions it's handling since 2009, and Kamholz expects that trend to continue into the future. But, he posed to the two panelists, when is it right for a hospital to seek a partner?

For Cape Cod Healthcare — which includes 250-bed Cape Cod Hospital, in Hyannis, Mass., and 95-bed Falmouth Hospital — that was around 2008. They were recruiting Lauf as a new CEO, had lost more than $20 million that year, and were looking for someone to help them recapture the magic of old. They needed to fill gaps in their offerings, Lauf says, with physicians migrating away from the system and a need to bolster quality in response to health reform in the state.

"We never started with a foregone conclusion that we were going to remain independent," he says. "We wanted to know what was best for Cape Cod Healthcare, and that was the pursuit we took."

Cape Cod went through a "painful" nine-month process, courting five potential suitors while all the while picking the brains of its board, employees and administration. Ultimately, no one fit into the gaps they needed to fill, and every potential partner had them in too subordinate a position, Lauf says. They've instead partnered with physicians to transform the organization, rebranded themselves, and continue to search for other arrangements to better the hospital.

"We had to focus and said, 'This is what we need from a partner, and if we can't get it, then we're going to go out and make sure we're extremely relevant, so should the discussion ever come up again, we're prepared,'" he says.

Meanwhile, Martha Jefferson also identified five suitors, met with three, and merged with Sentara Healthcare. Despite the different outcomes, both execs had similar takeaways from their experiences — never be reactionary, and explore partnerships whenever possible.

"It's not a bad discussion to have and doesn't need to lead to a formal discussion," Haden says. "It's just an exercise of saying what is important to us, and what accommodations would we be willing to make in order to gain something else."