"Strategic Alliances: Some Lessons from Experience: A Commentary"
by Tim Size
Used with permission from "Strategic Alliances: Some Lessons from Experience: A Commentary," by Tim Size, pp. 40-52, from Partners for the Dance: Forming Strategic Alliances in Health Care, edited by Arnold D. Kaluzny, Howard S. Zuckerman, and Thomas C. Ricketts, III. Ann Arbor, MI: Health Administration Press, © 1995 by the Foundation of the American College of Healthcare Executives.
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Due to the length of this article, it has been divided into Parts I and II. A link to Part II is at the bottom of this page.
Introduction
The American experience gives us many images, often contradictory. Barry Stein in "Strategic Alliances: Some Lessons From Experience" immediately takes us back to a New England farm to emphasize our comfort with individual control and ownership: "Good fences make good neighbors." But there is more to Robert Frost's poem Mending Wall: "I let my neighbor know beyond the hill, and on a day we meet to walk the line and set the wall between us once again..." Even this American icon to self-sufficiency is expressed within the cultural context of selective cooperation being used to maintain a local sense of self.
While alliances or collaborative enterprises have not been our primary experience, strategic alliances are not new to the American landscape.
More than one hundred health care cooperatives have been formed in rural America during this century. In various forms and with varying levels of success, rural medical cooperatives have experienced periods of popularity throughout the 20th century. Today, modified versions of the pure cooperative model are resurfacing as corporate vehicles to bring needed health care services to medically underserved regions of America. (Kushner 1991)
On the other hand, a last reference to one of our great traditional poets: "Two roads diverged in a wood, and I - I took the one less traveled by, and that has made all the difference." Those of us who have been attracted to cooperative models in health care have clearly been on a less traveled path, we have struggled to understand and develop alternatives between John Wayne look-a-likes and Ivan Boesky wannabes. Unfortunately, in many communities, the denial of need for change has only ended when the only options left require closure or acceptance of total dependency upon a large regional or national corporation.
Moss Kanter and Stein's demonstration of the widespread use of strategic alliances in industries outside of health care is welcome and particularly timely as we face national health reform and major shifts in our health delivery infrastructure - the experience of other major industries can help us to develop effective alternatives that balance traditional preferences for local autonomy with our country's mandate that health care serve more, better, for less.
With reform, providers based in rural or small communities will tend to have the choice of being part of multiple regional networks/HMOs or participating in a single public utility with state determined fee schedules and micro-regulatory oversight. In either event the model of strategic alliances is a viable alternative for rural providers to that of selling their practice or hospital to out of community corporations. In response to anticipated reform, several existing strategic alliances in Wisconsin have begun to build on a base of earlier collaboration to develop a new and more comprehensive relationship. This paper reviews and proposes a new strategic alliance between two existing alliances, the Community Physicians' Network and the Rural Wisconsin Hospital Cooperative. This is definitely not a plan for merger or take-over of either organization, both will continue to grow independently and form other relationships while developing with each other those selected joint ventures that are win-win scenarios for the constituents of both organizations.
The Critical Importance Of Choice
From Washington, we have been hearing about six principles that will guide health care reform: security, simplicity, savings, choice, quality and responsibility. Large regional or multi-state medical-industrial corporations may be underestimating the importance and power of the "C" word - choice as the concept seems missing in much of their public statements. The cultural imperative of choice is a powerful, if not defining ally, for those of us whose business is to see the market niche for strategic alliances. The politics of reform and the market place are ultimately, if imperfectly, driven by the values of voter and consumer.
Choice among alternative health plans by consumers is clearly a defining value. The end of an era of almost unlimited choice should not be mistaken with the beginning of one with no to minimal choice for consumers and providers. President Clinton emphasized this point when he introduced the American Health Security Act to a joint session of Congress: "The choice will be left to you -- not your boss -- and not some bureaucrat." (The Associated Press 1993). It is safe to assume that the use of the term bureaucrat is not restricted to government employees, but may include staff of private corporations with a mission to acquire and control the decisions of others. He went on to say, "And we also believe that doctors should have a choice as to what plans they practice in. We want to end the discrimination that is now growing against doctors and permit them to practice in several different plans. Choice is important for doctors, and critical for consumers" (The Associated Press 1993).
However, community providers will not be left alone to do their own thing, they are unlikely to be allowed to "refuse to deal" with regional health maintenance organizations (as defined by current and future anti-trust enforcement) without forcing the alternative of regional single payer oversight. Increased and substantial accountability will be demanded. In less densely population areas, the development and maintenance of the competitive market alternative to a single payer system will depend in large part on the ability of rural networks to balance their traditional autonomy with a need to work cooperatively with regional health maintenance organizations.
A Requirement To Develop Systems Of Integrated Care
Whether or not reform takes the direction of single payer, managed competition or something in between, it is clear that providers and insurers will increasingly be expected to offer those patients seen at multiple sights or over multiple visits a unified or integrated experience. No longer will it be acceptable for each step along the course of a patient's care to act as if the individual was being seen for the first time. Even the Mayo Clinic has begun to accept CT and MRI studies from referring physicians.
There is a real danger that the myth of service delivery integration only being possible through corporate merger and consolidation can become self-fulfilling. It is clearly an increasingly common model but we are in danger of placing too much emphasis on this single approach. We may be artificially restricting our vision of the future by focusing on the means to an end, not the end itself. The end or goal should not be defined in terms of how services are owned or organized but how they are experienced by the patient. This is not just a play on words but something that makes a real difference in both the private and public systems we design. Systems do not design or develop themselves. If we wish to see empowered local communities, it is up to those same communities to develop the appropriate alternatives.
We know that integrated care will be an extraordinary challenge for all of us whether we work in vertically or horizontally integrated systems, whether our workplaces are characterized by a corporate culture of control or one of collaboration. The real issue is how do we integrate the receipt of high quality, cost effective services - not whether one corporation controls the delivery of care, but whether the patient experiences care as being provided with continuity, without seams.
One of many potential practical implications of the system models assumed by reform lies in an area commonly most associated with vertically integrated delivery systems-integrated health information systems. In rural areas, we must develop regional systems to access individual medical records as the patient moves between rural clinic, rural hospital, urban specialist at rural hospital, urban specialist at home clinic, urban specialty hospital, rural home health agency, etc.. The exclusive use of the "single corporation in control" paradigm inevitably tends to lead towards the development of multiple individually owned and operated regional health information system networks, duplicative systems of parallel play among competing networks. Such a system forces rural providers to support duplicate local access into competing information systems as the only alternative to exclusive contracting or merger. "Providers and payers must begin to think of an information network as a community resource rather than a way to gain competitive advantage. Other matters to be resolved include achieving technical standardization, reaching political consensus and cooperation, and resolving system configuration and ownership" (Wakerly).
While supporting the development of competitive markets we can choose to focus on the integration of the receipt of care and less on the particular ownership model of the delivery mechanism. In this example we can begin to think in terms of an open shared electronic highway as opposed to competing private electronic networks. Just as we do on concrete highways, we can govern use and access of the common arteries while retaining individual privacy. Common highways are understood as a necessary part of infrastructure support for competitive markets. The space remains public but the choice and timing of destinations flexible. It is this latter model that I think will be mandated by regional buying cooperatives.
Reform must in every facet support the ability of rural providers to contract with multiple plans in order to not be subordinated to a declining number of increasingly larger urban based corporations. By working with multiple plans, rural providers will be able to meet their community's need for local access and choice amongst competing regional plans and their alternative specialty resources. To do this effectively, anti-trust laws and enforcement must be revised in order to facilitate regional risk bearing physician-hospital organizations that can negotiate at a level table with increasingly large health plans. While government needs to not limit network formation, the necessary networks can only be created by those with an interest in developing collaborative rather than control oriented models of local community care.
Background For A New Wisconsin Strategic Alliance
The Rural Wisconsin Hospital Cooperative (RWHC) was incorporated in 1979 as a shared service corporation and advocate for rural health. It was the major force behind the formation in 1983 of a non-stock, not-for-profit insurance corporation, HMO of Wisconsin. At the same time, community physicians organized themselves as an affiliated independent practice association, the Community Physicians' Network (CPN) in order to provide medical services for patients insured by the HMO. A parent corporation, HMO-W, Inc. was formed in 1987, when HMO of Wisconsin was converted to for-profit status in order to raise additional capital. The stock of HMO-W, Inc. is primarily held by rural physicians and hospitals and HMO-W holds all of the stock of HMO of Wisconsin.
In anticipation of state and national health reform, the HMO of Wisconsin signed in October of 1993, a letter of intent to merge with Physicians Plus Insurance Corporation, a Madison based company. "Two of south-central Wisconsin's health maintenance organizations plan to join forces next year in a merger that reflects the ripples of change that portend a possible wave of reform in the nation's medical system. The new organization would have one of the largest HMO enrollments in the state with a combined membership of 116,000" (Lautenschlager 1993). "The move will allow the health maintenance organizations to more effectively compete against DeanCare HMO, the major player in the Madison area and give them access to markets in which they are weak or have no presence at all." (Silver 1993) "The integration of HMO of Wisconsin and Physicians Plus brings together two organizations with complementary strengths. Physicians Plus serves patients in Dane and surrounding counties, while HMO of Wisconsin provides care to individuals living in rural communities of south-central Wisconsin and the greater Oshkosh area" (HMO of Wisconsin and Physicians Plus 1993).
At the same time, the Community Physicians' Network and Rural Wisconsin Hospital Cooperative have begun movement towards an expanded working relationship to strengthen rural providers in their ability to provide community based integrated care in order to better work with the resulting merger of HMO of Wisconsin and Physicians Plus, as well as other regional HMOs and Multi-specialty group practices.
The Community Physicians' Network
The Community Physicians' Network (CPN) is an independent practice association owned and governed by physicians. It is a partner with HMO of Wisconsin providing health insurance and care through 400 primary care physicians in 100 Wisconsin communities and 2,000 specialists in Wisconsin, Minnesota and Iowa. The CPN's board and committee structure insures physician governance from each primary care community. HMO of Wisconsin provides administrative support and data for utilization review, quality assurance and reimbursement. CPN has begun to offer volume purchase programs through medical and office supply facilities and arranges management consulting, seminars and other practice enhancements.
Through the CPN, Primary Care Physicians (PCP) are compensated on a capitation basis for a broad array of primary care services provided to members of HMO of Wisconsin. The PCP capitation is adjusted based on age and sex of the enrollee and the benefit plan under which the enrollee is covered, a 10 percent withhold is applied to capitation payments. Non-capitated services provided by PCPs and all services provided by specialists are paid according to the CPN Fee Schedule, a 20 percent withhold is applied to fee-for-service payments.
Two mechanisms have been established by the CPN to limit the PCPs risk from capitation, the Equalization Fund and the Outlier Fund. The Equalization Fund provides supplemental reimbursement to PCPs who have demonstrated particularly effective case management. PCPs who demonstrate prudent use of referral services are guaranteed a minimum capitation reimbursement equal to 80 percent of actual charges. The Outlier Fund provides supplemental payment to PCPs whose capitation payment is adversely effected by catastrophic cases (HMO of Wisconsin 1993).
Capitation does place a degree of risk on the PCP. The risk is magnified when a PCP has a small panel of capitated patients. CPN pays PCPs on a fee for service basis with a 15 percent withhold until the PCP's panel reaches 100 enrollees. In rare situations where capitation is determined to be an unsuitable payment arrangement, PCPs are paid according to the CPN Fee Schedule with minimum withholds ranging from 5 percent to 25 percent (HMO of Wisconsin 1993).
The Rural Wisconsin Hospital Cooperative
The Rural Wisconsin Hospital Cooperative (RWHC) originated in 1979 as the result of informal discussion among several hospital administrators in southern Wisconsin. RWHC is owned and operated by 19 rural acute, general medical-surgical hospitals and one urban hospital (University of Wisconsin-Madison); the rural hospitals serve a population of nearly 300 thousand people over 15 counties. The hospitals in the Cooperative are owned and governed by a variety of structures including local non-profit associations, municipalities, counties, the state, or churches. Most members are geographically contiguous with member hospitals located in central and southern Wisconsin. The model of the dairy cooperative was chosen because it respected the autonomy of the sponsors and was a type of organization familiar to the community boards that would have to approve individual hospital participation.
The purpose of RWHC was and is to act as a catalyst for regional collaboration. Since its incorporation, it has tried to be an aggressive and creative force on behalf of rural health care. It now employs or contracts for the services of approximately 150 people (full- and part-time) with a $5 million dollar annual budget, exclusive of affiliated corporations.
RWHC staff provide services directly in areas such as advocacy, audiology, multihospital benchmarking and other quality improvement initiatives, grantsmanship, occupational therapy, per diem nursing, physical therapy, respiratory therapy, physician credentialing, speech pathology, emergency room physician staffing, and ongoing rural specific continuing educational opportunities. RWHC has negotiated special group contract arrangement for members to obtain high-quality consultant services in areas such as legal services, personnel consulting, market research, patient discharge studies, and consultant pathology services.
With private investors and operators, the Cooperative has implemented a mobile CT, MRI, nuclear medicine, and ultrasound service to rural hospitals, reducing cost and improving access to this service for RWHC members and other area hospitals. RWHC established a pilot loan guarantee program for RWHC hospitals in cooperation with the Robert Wood Johnson Foundation and the Wisconsin Health and Education Authority, which in turn was used as a model for the State
A particularly productive and popular RWHC activity has been professional roundtables that regularly bring together RWHC hospital staff of the same discipline for mutual sharing, problem solving, continuing education, and advising the RWHC Board and staff on program and policy development. This has been recognized as one of the primary benefits of RWHC - learning from each other. The number of these roundtable groups that are active has significantly increased and now includes 22 professional groups (i.e., lab, pharmacy, and radiology).
"Strategic Alliances, Some Lessons from Experience" - Part II