For outpatient technology and services companies that can master the art of successful hospital partnerships, the growth opportunities are limitless.
The growth opportunities for outpatient healthcare technology services companies have never been greater. Today’s hospitals are motivated to build partnerships and outsourcing relationships so that they can focus on their own core competencies while integrating the best ancillary services and technologies available on the market. While COVID-19 has refocused priorities in the short term, hospitals will get back on track to strengthening outpatient services in the near future.
For nearly three decades, I have focused on growing outpatient technology services businesses through partnerships with nonprofits, for-profits and academic institutions such as Rush University Medical Center and the Medical University of South Carolina. Recently I joined LLR Partners as an Executive-in-Residence to develop a physician practice management platform where physician and hospital relationships will be key to the growth strategy.
Creating these partnerships isn’t easy, but I believe outpatient service providers can build long-term win-win relationships, and avoid some of the most common hospital partnership pitfalls, by focusing on four key elements.
Understand the Agendas and Personalize your Approach
A hospital is like the United Nations: while it’s a single organization, it’s also a collection of conflicting interests that can’t exist without compromises and concessions.
When meeting with a potential hospital partner, you will sit with a diverse group, each with a different objective. The CEO is motivated by a desire to grow revenue and ensure their physicians and patients have access to the latest technology. The CFO wants to protect the hospital’s bond ratings and preserve cash. The service line manager wants to know that their job is secure and that the partnership will enhance the prestige and success of their specific service line. The medical director is focused on attracting more patients and expanding their domain. And physician retention is often surrounded by ownership in ancillary services.
To move the partnership forward, you need to not only understand the organizational goals but the underlying fears and priorities of each member of the decision-making group. Take the time to meet with each person individually and show them how the partnership will benefit them professionally as well as the hospital and its patients as a whole.
For example, while CFOs are highly motivated to support new programs and drive additional revenue, it is also their job to protect the overall financial health of the hospital. They will be reluctant to jeopardize their bond ratings by showing the additional major capital expenses against their debt-to-equity ratios. To address a CFO’s concerns, you could look at structuring a partnership so that the hospital is not the majority owner, which means that the new program will generate capital “off books” and bond ratings won’t be affected. The new program can still be branded as a hospital program or service.
To move the partnership forward, you need to not only understand the organizational goals but the underlying fears and priorities of each member of the decision-making group.
Align Incentives and Anticipate Termination Risk
In a partnership between outpatient services, physicians and hospitals, everybody wins together or loses together. Distributions should go to all partners equally based on pro-rata ownership and everybody needs to get paid at the same time. If any member of the partnership is able to collect returns sooner, or if there’s a perception that they are able to skim off the top, it will sour an otherwise mutually beneficial arrangement—and ruin any motivation sparked by the initial win-win approach. Most importantly, every member of the partnership should be incentivized to stay committed to the venture and give their best.
This principle extends not only to incentives but also to deterrents, which is why it’s so important to pay attention to the termination agreement. This is often overlooked during the formation of a hospital partnership: after all, when you’re getting engaged, nobody’s thinking about the divorce decree. But defining termination situations in detail helps operators address the risk of a partnership imploding.
For example, the average tenure of a hospital CEO is three years, but a partnership may require 10 or more years to deliver its full value. If a new CEO is appointed, the likelihood is high that they will terminate contracts that they didn’t have an opportunity to influence: are there provisions in place to address this? Similarly, how would an acquisition affect the stability of the partnership? These types of situations leave the partnership vulnerable unless the acceptable reasons for termination are clearly articulated and agreed to. It is worth the fees for a strong healthcare law firm to assist in creating these documents.
When you’re getting engaged, nobody’s thinking about the divorce…
Manage Expectations, Reputations and Who’s Making Decisions
Protecting your credibility and reputation by managing and delivering on the expectations is crucial. The healthcare industry is close-knit and news travels quickly. This is something my managers have heard me repeat dozens of times: “You live and die on your reputation, and you only get one, so don’t mess it up.”
If you want to protect that reputation, make sure the people who are responsible for delivering on the terms of the deal are actively involved in setting those terms—don’t leave that part of the process up to the lawyers and salespeople. Experienced lawyers are absolutely critical, but they are there to protect the terms that have been agreed on, not to evaluate how realistic they are. Sales, on the other hand, is there to sell the moon and the sun. It’s what they do—and what they’re incentivized to do. Only operations people can provide a reality check, and they need to be sitting at the table alongside sales to ensure you don’t end up overpromising and under-delivering.
You live and die on your reputation, and you only get one, so don’t mess it up.
Control the Marketing
Marketing is a crucial element in the launch of any new product or service, but few hospital marketing teams are set up to support the promotional needs of a partnership venture.
Hospitals often organize marketing campaigns on a rotational basis, marketing a different service line each month based on national days or months of awareness. Breast cancer awareness takes place in October, for example, while heart health is promoted in February. This approach works when the objective is to promote public awareness of various health issues, but it won’t grow market share for a healthcare product or service.
Whatever the health issue your services are designed to address, consumers will experience those issues and seek out care year-round. If your marketing efforts are restricted to one month of the year, you can only attract a small fraction of your addressable market.
I always ensure that the marketing function is led by an external hospital marketing team that knows how to maintain a consistent and coordinated marketing strategy for all 12 months of the year. It’s not always easy to wrestle control from the hospital’s own marketing team, but it’s crucial to the success of the venture.
It’s not always easy to wrestle control from the hospital’s own marketing team, but it’s crucial to the success of the venture.
Here’s the bottom line.
Hospitals are complex organizations and establishing a joint venture or partnership with one requires careful planning and an understanding of the politics and nuances involved. Being able to balance multiple agendas, align incentives, manage expectations and consistently drive new business isn’t easy, but for outpatient technology or services companies that can master the art of creating successful hospital partnerships, the growth opportunities are limitless.