Multi-State Health Systems: On Their Way at Last

As mid-size health systems seek growth and meaningful scale, the most effective way to achieve this will be system combinations, and these will include those across state lines. The recently completed combination of Advocate Health Care of Chicago and Aurora Health Care of Milwaukee is an example of this kind of transaction cross-border combination.

Most of the other system mergers to date have arguably been more about size than scale. Size connotes the ability to buy in bulk, to centralize some functions and spread overhead. Scale adds the ability to operate more effectively as well as efficiently, improving an organization’s ability to execute as the industry changes. This might be by combining skills or relevant markets that provide additional strategic or financial value. A number of studies have indicated that there is significant additional value created by the integration of partners over and above that derived from merely combining.

Key Board Takeaways

Boards of healthcare organizations considering multi-state partnerships can take the following steps:

  • Assess your own situation to see what you need and what you have to offer. By defining your strengths, needs, and objectives as clearly as possible, you will be in the best position to initiate conversations with others.
  • Assess potential partners to get an idea of how well they might meet your needs, and whether their culture might be compatible with yours.
  • Determine and quantify the benefits of the combination. If they are significant, and achievable, this will inform the structure and your negotiating approach to the relationship.
  • If you identify a potential “good-to-good” partnership, be prepared for an atypical negotiation. Whereas in most transactions it is imperative to agree on many details before closing, in these it may be better to “fudge” some things to finalize the deal.

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