Intro: The following SHSMD Podcast is a production of Dr. Podcasting.com.

On this edition of the SHSMD Podcast, we talk about growth for scale and ownership; different options to develop partnerships with Greg Coloso. You know, merger and acquisition isn't always the best answer, maybe, partnering is. So how do you know the ins and outs of that? The financial and legal considerations.

What about ongoing operations? Well, we're going to find all of that out with Greg, who's doing a great session at SHSMD Connections 2023. So should I stay or should I go? Should I acquire or should I partner? Hmm. Those are the burning questions. Let's get some answers with Greg, right now.

This is the SHSMD Podcast, rapid insights for healthcare strategy professionals in planning, business development, marketing, communications, and public relations. I'm Bill Klaproth. In this episode, we talk with Greg Calosso, Senior Director of Business Initiatives and Alliances at Dana-Farber Cancer Institute.

He will be presenting at this year's SHSMD Connections 2023 annual conference, his session, growth for scale and ownership; different options to develop partnerships. So I'm going to ask you again, have you signed up for SHSMD Connections 2023? Hmm. Have you? Hmm. Well, if you haven't, let's get to it. Would you people?

All you have to do is go to shsmd.org, S-H-S-M-D.org/education/annual conference.

Hope to see you there. Greg, welcome to the SHSMD podcast.

Greg Calosso: Thanks for having me here, Bill.

Host: Yeah. We are looking forward to your session at SHSMD Connections 2023. Can you give us the Cliff Notes version of your presentation?

Greg Calosso: Sure. Essentially the presentation is going to dive into different ways to look at partnerships with hospitals and physician practices. Traditionally we think about acquisitions or mergers of hospitals. And this is going to look at a few different options that are less frequently understood and less frequently known.

Specifically, the joint operating agreement and a minority equity transaction with physician practice.

Host: Got it. Well, this is going to be a very valuable session. So I know you say merger and acquisition sometimes isn't the best strategy. Partnering may be more effective. Why is that?

Greg Calosso: Yeah. So essentially in healthcare we are often asked to do more with less. We always have tons of growth aspirations, so if we aren't growing, we're shrinking, right? So many of us think, hey, let's go merge or acquire new hospitals or new practices into our health system. We do that to essentially build scale, network access. We like to spread costs associated with management services and IT. We're trying to solidify our strategic position in different markets, retain channels for patient acquisition and patient retention. Have high acuity and complex cases flow to our hub hospitals and hub entities, and we often are looking for gains in market share and essentially defensive moves to retain existing share and then retain existing patient flow.

But that's not necessarily always what a potential community hospital or a physician practice is looking for. And those community hospitals and physician practices often are doing okay as independents, especially if they're already still independent today and trying to keep them independent is actually probably a better move.

And trying to work with them to achieve the same goals that you would in a merger and acquisition via a different model could allow for lower capital intensive outlays and lower subsidies associated with the ongoing operations thereafter.

Host: Yeah. So then how do you evaluate whether M and A or partnership is the better strategy? How do you do that?

Greg Calosso: Yeah, so lot of it is going to ultimately be cultural fit of an organization and what does that organization look like financially and look like as a standalone entity today. And many entities that were having financial issues over the years have already been acquired. Therefore a lot of the practices that are still left, are doing relatively okay financially.

They're looking at potential private equity transactions. They're generally looking for some access to more capital, refreshing their facilities. And acquiring them isn't necessarily always the best type of transaction. So in, in those instances when you have a practice or a hospital that's doing quite well and it's a target for you; you may want to think about a different type of model to help them retain their independence, but help to create a stickiness that allows your organization and their organization to work closely together in perpetuity.

Host: Right. So when you mentioned a different model, partnership certainly can fit that bill. So what are the different types of partnership models and transaction types with, I'm sure there's different integrations as well. What do we need to know about that? What are the different options?

Greg Calosso: Sure. Absolutely. So, traditionally what folks think about is a CIN or an ACO or a PHO for physician alignment. Lots of professional services agreements, lease agreements, co-management, and in surgery, of course, many people have moved to JVs on surgery centers and traditionally on hospitals, you know, hospitals work together on PSAs for services, lease space, hosted programs, and creation of JVs together. But what's usually a little less frequent and less seen in most markets is a minority equity transaction on a physician practice where, a hospital or provider can actually become a shareholder in the practice and have a seat at the table alongside a physician owner.

So we'll dive into a little bit about that at the presentation and in hospital alignment, a joint operating agreement. And that's really when you're actually operating a service line or a program jointly as two separate hospitals and you're essentially sharing in the growth of margin or revenue above and beyond current state. So both of these models allow the hospital or the physician practice to remain independent. It really is investing in their independence and it's alleviating some of the stress and headaches associated with lack of scale for that smaller community hospital and allows a physician to be a physician a bit more rather than put emphasis on them as a small business owner.

Host: Right. So you just mentioned sharing revenue. So then what are the financial and legal considerations for partnerships?

Greg Calosso: Yeah, absolutely. So in a joint operating agreement, you really want to look at what services can both entities use. And essentially is the hospital itself, the originating hospital, going to be billing for those services? And you want to set a baseline essentially around here's what your prior year looked like or most recent year looked like, and here's what we think we can do together, above and beyond that year. What you want to be able to prove to that hospital entity is that you're able to turn a return on investment for them, create a positive NPV and cashflow for them. But do the same for yourself as a hospital entity. And that's really where the win-win is, if you're both able to jointly grow a program and create cash flows for both organizations.

That's great. Conversely, on, on the minority equity transaction agreement, right? You can buy into a practice at five, 10, 15% interest. It doesn't allow or force you to have to shell out millions of dollars in transaction revenue to acquire practices. You're really looking at practices from a cashflow basis and you as an investor, so you can actually look at those and agree to brand license agreements, service agreements, and different things of that nature that allow some cashflow to come back to you and allow value to be created within that practice.

But lots of legal complexities here of course, as you were leaning into there. There's a lot of considerations of organizational appetite for risk. A lot, all of this must be done at fair market value using third party transaction valuation firms and really you want to actually invest in a strong legal team for this type of transaction.

They're quite complex. Usually it will actually take you much longer to accomplish one of these transactions and much more legal documentation than it would an outright acquisition of a practice or a community hospital. And the other real consideration you want to make, which affects different states differently is corporate practice of medicine, regulations and regulations on professional corporations. And those are more specifically around physician practice transactions.

Host: So you mentioned complexities and considerations. What about the ongoing day-to-day operations? I imagine that would be another complexity to consider. Give us a glimpse of what those look like in a partnership.

Greg Calosso: Sure. Essentially when you do an acquisition, uh, I've never seen one acquisition that goes completely smoothly. Um, and I don't think those exist. Um, so, you really look at them and say there's so many operational issues that end up existing post-acquisition, the integration work, IT, billing, et cetera.

And in these partnerships, often you're able to leave much of the infrastructure the same as what already exists. So there's less of those complexities. The complexities are more around working closely side by side with a new hospital entity or a physician practice entity, and having the cultural alignment there to focus on what is our goal and our vision of this partnership.

Clearly document and state that and make sure that all of those were involved understand that that's what you're really trying to get to. You want to make sure that there's joint operating committees and subcommittees and you want to make sure that you're focusing on the vision at hand, which could be improving quality of care, hosting joint events together, ensuring growth through new types of strategies and executing business plans and strategic plans, or really pushing operational efficiencies and cost cutting measures and identifying revenue cycle opportunities. The, these all can be part of that partnership. And you really want to focus on those details and make sure that everybody's aware of what you're trying to do, everybody's in the loop, and that there's a mode for communication and method of communication so that everybody feels heard and understands the reasons for the partnership.

Host: Absolutely. So this is going to be a very interesting session. Who is the perfect person to come to your session? Somebody that's struggling right now and hoping, boy, I need some help. I would like to partner with somebody or somebody that's looking to grow and looking to partner or maybe do an M and A, but maybe a partnership is better or both. Who's the perfect person to come to your session?

Greg Calosso: Yeah, it really is both sides of a transaction. But ideally it's folks who are in strategic planning and in business development, chief strategy officers and vice presidents of strategy and business development. This is a different type of transaction and in both cases, it's something that, you know, a lot of organizations should start to consider more frequently than they have in the past, especially given that we're coming out of COVID. We have restricted capital budgets, and we're still being encouraged to grow. We have so many physicians in succession planning and labor shortages that, you know, there is some necessity here to think about how can we work with organizations that we have to enable them to thrive as independent entities and work closer together, rather than need to control that entity and organization.

Host: Right. Well this has been great. Thank you so much for your time, Greg. Any final thoughts you want to add about your session growth for scale and ownership; different options to develop partnerships?

Greg Calosso: Yeah. I'll just go into two very specific transactions that we did here at Dana-Farber with organizations in New England. And I'll walk through some details of a joint operating agreement and details of a minority equity transaction with the practice. So hopefully that'll be of value to everybody.

Bill Klaproth (Host): Absolutely. Greg. That sounds great. Thank you so much for your time today. We really appreciate it.

Greg Calosso: Really appreciate your time as well, Bill. Thanks for having me.

Bill Klaproth (Host): And once again, that's Greg Calosso. Make sure you check out Greg's session at this year's 2023 SHSMD Connections Annual conference in Chicago, September 10th through the 12th. Have you registered yet? Well, let's get you registered. All you have to do is go to shsmd.org, SH-S-M-D.org/education/annualconference. Do it today.

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Okay. Okay. This has been a production of Dr. Podcasting. I'm Bill Klaproth. See you.