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PYA Principal David McMillan presented during The Knowledge Congress webinar, “The Impact of Healthcare Reform in M&A,” which discussed the fundamentals and significant developments related to mergers and acquisitions (M&A) and healthcare reform and was designed to help healthcare executives and professionals avoid related, common pitfalls and risk issues. The webinar also explored hospital network alliances as an alternative to traditional M&A including.
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July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
An Alternative toTraditional M&A:
Hospital Network Alliances
David McMillan
July 22, 2014
Changing Role of the Community Hospital
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Today Tomorrow
Maximize ability of healthcare services in thecommunity
Physicianrecruitment and
retention
Ensureessential
emergent andacute careservices;
subsidize withprofitableoutpatientservices
Pillar of thecommunity
Population Health ManagementPopulation Health Management
Future payment tied toassuming responsibility
for covered lives
Responsibility for entirecare continuum,
regardless of where andby whom care is
delivered
Traditional Affiliation Options
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Ca
pit
alIn
ve
stm
en
t
Integration/Control (Acquired or Given Up)/Stability
ClinicalAffiliation
MinorityInvestment
Joint Venture
ManagementAgreement
Joint OperatingAgreement
AssetPurchase/Acquisition
Lease
Merger/MembershipSubstitution
Clinical Financial
Drivers of New-Age Affiliations
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Collaborative Functions Supported by Collaborative Form
Today’s Forms
• Integrated Delivery Systems
• Physician-Hospital Organizations
• Independent Physician Associations
• Accountable Care Organizations
• Network Alliances
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Network Alliances
• Two or more entities develop formal relationship to share unique resources and capabilities to createcompetitive advantage
• Motivations
– Achieve economies of scale
– Design continuum of care
– Develop narrow networks
– Defend against competition from large systems
– Test the waters for more “involved” relationship
– Unwilling/unable to commit to traditional M&A
• Participants together define their common interests to be advanced through the alliance
• Maintains independence through interdependence
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Network Alliance: Five Stages
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Network Alliance: Developing the Strategy
• Each participant’s individual interests are respected and protected through the alliance’s governancestructure
• Participants make some financial commitment to support the alliance’s operations, but each remainseconomically independent
• Key Considerations:
– Scope of their partner’s relationship
– Form Follows Function: Function determines how Network Alliances are formed and governed
– Secrets to success and dangers to avoid
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Network Alliance Case Study: Health Network of Missouri
Purpose of Alliance:
1. Maintain Members’ commitment to serving local community needs through regionalinterdependence.
2. Provide better experience of care for individuals, improved health for populations, and lower percapita costs.
3. Develop regional identity and reputation for high quality patient-centered care.
4. Deliver value to healthcare consumers.
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Corporate Structure
• Missouri Limited Liability Company
• Equally co-owned by Members:
– University of Missouri Health Care
– Capital Region Medical Center
– Lake Regional Health System
– Bothwell Regional Health Center
– Hannibal Regional Healthcare System
• Equal capital investment by each
• Effective on date of filing Articles of Organization
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Governance Structure
• Managed by a Board of Managers comprised of:
– Three Member Representatives each, chosen by the Member organization:
• One from Management
• One from Governance
• One from Medical Staff
– One vote for each Member on all matters as decided among the three Member representativesfor each Member
• Quorum = Super Majority (80%)
• Voting = Majority, with listed exceptions requiring Super Majority or unanimity
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Voting Rights
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Super Majority Vote (80%)
• Transaction with a Member
• Indebtedness ≥ $50,000
• Dispose of all LLC property
• Merger/Consolidation
• Dissolve Company
• Budget approval
• Expenditures ≥ $50,000
Unanimous Vote
• Amend organizational documents
• Admit an additional Member
• Expel a Member
• Approve Network compacts
• Approve payer agreements
Committee Structure
• Executive Committee
• Audit/Finance Committee
• Legal Compliance/Governance
• Network Task Forces (Network Compacts)
– Network Care Coordination Task Force
– Network Population Health Management Task Force
– Network Payor / Employer Initiatives Task Force
• Alliance Initiatives Task Force (Member Contracts)
• Advisory Committees
July 22, 2014
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David McMillanPrincipalPershing Yoakley & Associates, P.C.
Health Network of Missouri
July 22, 2014
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SummaryNetwork Alliances achieve Independence through Interdependence
by seeking Collaborative Functions of multiple organizations in aunique Collaborative Form
For more information, please readour white paper and contact
David McMillan
www.pyapc.com
