Rural hospitals and health systems often encounter a major challenge when crafting and operationalizing partnerships with other organizations: partners don’t understand the unique attributes and value rural affiliates provide. These misconceptions can lead to faulty strategic decisions, so it is critical for rural healthcare organizations to understand and communicate their value proposition to existing and prospective partners.
Many large health systems that have significant rural operations do not optimize these operations. In our experience as a national and rural healthcare advisory practice, we have seen large, sophisticated health systems make serious missteps, such as missing annual payments reaching up to eight figures annually through flawed designations and alignment, or undervaluing incremental referrals from rural affiliates and failing to implement and protect these value drivers.
Decision-makers in both rural and large health systems often make assumptions about rural affiliates based on erroneous or incomplete data, leading to negative consequences including:
- Under-investment or disinvestment in rural operations – resulting in a suboptimal allocation of resources and diminished access to needed services
- Risk of “leakage” of referrals and attributed lives for the parent system
- Failure to capitalize on opportunities, resulting in insufficient returns from rural operations which depress future investment and overall system performance
- Partnership terms not representing the value of the prospective affiliate
- Rural health systems’ partnership options not reflecting their actual value
Value Levers for Rural Health Systems
Partners often misunderstand or undervalue the following value levers for rural health systems:
- Cost-based payment and implications for incremental investment
- Cost-report optimization opportunities
- Home office cost allocation
- Access to the 340B program
- Swing bed programs and their role in the continuum of care
- Rural health clinics and associated payment options
- Decanting volume to relieve capacity constraints and utilizing CAHs as specialized components of the continuum of care
- The value of attributed lives and a primary care base that is cash flow positive
- The “true” value of incremental referrals
Fully understanding, quantifying, and operationalizing the organization and market-specific value created from these value levers is increasingly critical for both rural health systems and larger integrated delivery systems with significant rural operations. For health systems of all stripes, getting partnerships right will be an increasing differentiator. Stroudwater combines in-depth rural operational, financial, and payment expertise with a national affiliation practice to tap the power of these value levers to benefit our clients and the communities they serve.
How To Best Ensure Existing or Potential Partnerships Reflect Your Value
To overcome misunderstandings or miscalculations, rural health systems must continue to evolve along with the industry and be proactive in highlighting the value they contribute to existing and proposed partnerships. We recommend that decision-makers in rural health systems take the following steps:
Evaluate how well existing or prospective partners understand the unique opportunities and challenges of rural healthcare delivery.
Start by asking these key questions:
- Do your existing or prospective partners understand the value available via home office cost allocation for CAH affiliates?
- Do they appreciate the opportunity that CAHs have related to the 340B program?
- Do they have any experience with rural health clinics and do they understand how to leverage this designation?
- Have existing or prospective partners optimized the designations and organization of their existing rural affiliates?
- What is the track record of your existing or prospective partner at their rural affiliates?
Understand how familiar your partners are with rural healthcare.
Research to find out partners’ knowledge of rural health systems operations. Ask:
- How well do they understand the operational and financial intricacies of cost-based payment?
- Do they have expertise in operating swing bed programs?
- To what degree have your existing or prospective partners demonstrated a track record at their rural affiliates of investing and expanding access to services?
- What value do prospective partners place on your aligned primary care base, referrals, and attributed lives?
Understand and communicate that partnering is not a risk-free endeavor.
A partnership can be a calculated risk, so ensure that both parties comprehend the potential risks and rewards.
For prospective partners:
- Vet and select a strategically aligned partner
- Select an affiliation structure that fits your strategic objectives and constraints
- Craft contractually enforceable terms
- Understand whether their strengths and commitments mitigate your risk profile
- Assess their track record:
- Do they understand rural?
- Does their track record back up their promises?
For existing partners:
- Ensure that your partner understands your value proposition
- Ensure that your affiliation structure enhances the value provided by the partnership for both parties
- Identify and quantify any missed opportunities
- Quantify the ROI of investments to reflect the unique rural value proposition
Contact Stroudwater to learn more about communicating your unique value proposition as a rural healthcare organization.