Strategic Partnerships in an Era of Value
16 April, 2019
By Helen Stewart, Managing Principal, and Eric Kammer, Senior Principal, GE Healthcare Partners
To survive in the world of value-based care, healthcare organizations are exploring innovative partnership business models that focus on outcomes, not just activity. These partnership models can range from actual new legal entities and joint ventures to long-term, collaborative engagements rooted in driving outcomes.
These models allow providers to leverage expertise, state-of-the-art analytics, and emerging technologies to transition from a narrow product strategy to a broader ecosystem approach.
Traditionally, hospital strategy has sought to deliver a slate of high-value inpatient services centered around surgery, diagnostics, and acute care. With hospital economics increasingly undermined by shifting volume and payment trends, organizations need to pivot from this traditional “product” strategy to a broader “ecosystem” approach to become the central player within a wider value chain of healthcare services.
An Innovator or an Input
Although healthcare leaders understand that standing still is not an option, they are challenged to be creative in designing new approaches to disruptive trends. Some are attempting to leverage network effects and economies of scale. These executives are focusing on mergers and acquisitions, often accompanied by cost-cutting initiatives and electronic health record (EHR) implementations.
Other leaders, however, are committing strongly to an ecosystem approach. To better understand this strategy, consider the evolution of Apple. Initially it was a niche computer company with a product focus. Over time, the company’s strategy became holistic, bringing together a broad set of diverse digital offerings—phones, tablets, watches, music streaming, and more—all united by the company’s singular design vision. Apple moved from being a product supplier to a lifestyle influencer for millions of consumers, generating tremendous value in the process. Similarly, progressive hospitals are now assembling diverse but mission-aligned capabilities to move beyond their walls and out into the healthcare ecosystem in order to increase their relevance and value across the patient journey.
A critical thread of the new healthcare ecosystem is precise care. New therapies and care models are just the start. Inputs also include more care sites (from acute care to outpatient clinics to home services) and more data (not just from the EHR, but also from health plans, wearables, and smart devices).
Several organizations outside the provider world are positioning themselves to lead the new healthcare ecosystem through ambitious partnerships and enterprises. As these disruptive partnerships solidify their control of patients, patient data, and outpatient access, they will create tremendous opportunities to capture an increasing share of the healthcare ecosystem.
Hospitals risk losing ownership of the patient journey and becoming a single “input” in the care delivery system. If this happens, the hospital business will be reduced to low-margin inpatient care characterized by declining volumes, declining payment, and high fixed costs.
3 Partnership Solution Ideas
One way for hospitals to avoid this fate is to form disruptive business models with non-provider organizations. Forward-thinking healthcare leaders see these partnerships as their chance to build a health-system-controlled ecosystem by harnessing data, leveraging technology, rethinking existing infrastructure, and creating new care models. Below are three ideas to consider.
Partner to cross the finish line, not just complete the punch list. Cross-capability partnerships have a higher chance of success when they are founded on “co-resourcing.” Consider how Amazon, Berkshire Hathaway, and JPMorgan are working together. This is not a vendor relationship but a true partnership in which each organization brings its capabilities to the table to accelerate change and innovation.
For healthcare organizations, the non-provider partner similarly must offer complementary resources that enable leaders to push the ecosystem strategy forward with greater velocity.
Partner to create new value, not just fill gaps. The co-resourcing approach also has implications for managing the evolving healthcare ecosystem, and it requires alignment on a shared vision and clear set of incentives. Healthcare organizations cannot simply turn to vendors to fill capability gaps as they have for decades. Instead of the traditional transactional client/service-provider model in which value is exchanged, healthcare organizations should seek outcomes-based business models that link partnering organizations side by side to create breakthrough value.
To deliver value creation solutions within a broader ecosystem strategy, healthcare organizations require partners with expertise in areas that may not even seem fundamental to the problems at hand. This includes leadership capabilities in digital health, emerging technologies, artificial intelligence, simulation modeling change management, and other domains.
Partner to achieve lasting change, not a limited fix. Partnerships are a long-term endeavor, and health care is a dynamic industry. For partnerships to deliver on their value potential in this ever-changing environment, strong governance mechanisms are essential. A “relational governance” model offers a stable structure to enable true risk sharing.
In a conventional transactional relationship, the consulting firm or vendor reports to an individual member of the healthcare organization’s executive team. This executive is the ultimate decider regarding the entire relationship. In a partnership, however, decisions are made by a shared governance body that includes representatives from both partnering organizations. Because the partners share long-term financial, operational, and clinical goals, it only makes sense that they share equally in setting priorities and making ultimate decisions. A key is to implement a governance model focused on insights versus oversight.
Finally, historical experience and current economic constraints make many provider organizations highly constrained to drive change. Engaging a nontraditional partner can help drive innovative thinking and quicken the pace of adoption. Just as important, an outcomes-based partnership can help a hospital organization maintain strong operations and revenue in the current payment environment of today while it builds and implements the organization’s ecosystem strategy for the future.