How MarinHealth stays independent through partnerships, joint ventures

More hospitals and health systems are turning to partnerships as an alternative to mergers and acquisitions.

MarinHealth, a small health system anchored by a 327-bed hospital in the San Francisco Bay area, is one of several systems that has maintained its independence through joint ventures and clinical affiliations. The Greenbrae, California-based system has continued to grow its long-standing affiliation with UCSF Health, giving MarinHealth access to UCSF’s electronic health record infrastructure and its specialists. MarinHealth is also part of accountable care organization Canopy Health, which features a network of more than 6,000 primary care physicians, specialists and other healthcare providers in the Bay Area.

“The partnership with UCSF gives us the ability to recruit quaternary-type specialists that are second-to-none, like in neurosurgery and cardiothoracic surgery,” said CEO Dr. David Klein, who took the helm in September 2020.

Klein said the MarinHealth board told him when he was hired that the health system should remain independent. More than two years later, Klein said he does not envision a scenario where the organization would be forced to merge with another system. 

That mentality has been increasingly rare, as many health system executives constantly survey the field for potential merger partners. Systems typically seek mergers to spread rising labor and supply costs over a larger organization, expand their reach, improve their standing in the bond market amid rising interest rates and investment declines, and boost their bargaining leverage with commercial insurers to mitigate Medicare reimbursement cuts. 

The pressure to consolidate has mounted as median days cash on hand decreased by 23% year-over-year as of August, according to an analysis of approximately 700 nonprofit hospitals by consulting firm Kaufman Hall.

But some health systems have found that partnerships can provide similar benefits to merger and acquisitions without a change in control and increasing operational complexity.

In the case of MarinHealth and UCSF Health, two UCSF representatives sit on MarinHealth’s board. The 10-year strategic alliance formed in 2018 included clinical and information technology integration and a $110 million capital investment from UCSF. The deal also allows MarinHealth to use the UCSF Health brand, and MarinHealth’s physician locations are jointly operated with UCSF.

Rapid City, South Dakota-based Monument Health, formerly Regional Health, has also pursued partnerships to remain independent. Monument formed a group purchasing partnership with Sioux Falls, South Dakota-based Avera Health about 14 years ago to bundle its purchasing power. It has saved each organization millions of dollars annually, said Paulette Davidson, president and CEO of Monument. 

Monument also joined the Mayo Clinic Care Network in 2020, giving it access to Mayo’s research, diagnostic and treatment resources, which have been particularly valuable to a rural health system like Monument, Davidson said. “Monument Health has prided itself on being independent and have relied on the philosophy of collaboration,” she said. 

Hospital and health system merger activity has subsided in recent years as most acute-care markets have become highly consolidated. More than two-thirds of the country’s 5,139 acute care hospitals were part of larger systems as of January 2022, according to American Hospital Association. Fifteen years ago, the share of system-affiliated hospitals versus independent facilities was close to a 50-50 split.

Growing regulatory scrutiny of hospital consolidation among the Federal Trade Commission and state attorneys general has also deterred mergers, said Neil Olderman, a partner at law firm Faegre Drinker Biddle & Reath who specializes in healthcare transactions.

“Our clients are looking to joint ventures, strategic deals or collaborative agreements much more as opposed to acquisitions,” he said. “Because of the regulatory environment and shrinking number of healthy targets that have relevance within a region, there are fewer merger matches.”

Durham, North Carolina-based Duke Health and Brentwood, Tennessee-based LifePoint Health formed a joint venture in 2011. The joint venture between the academic health system and the for-profit hospital chain operates more than a dozen hospitals across North Carolina, Virginia, Pennsylvania and Michigan. The goal was to combine the clinical and quality expertise of Duke with the management expertise and capital of LifePoint.

“Patients want to stay closer to home, and we thought we could provide services for care to be delivered locally in a safe environment,” said David Dill, chairman and CEO of LifePoint. “We pull together our operational expertise and capital investment. With that, our volumes grow, market share expands and our quality improves.”

The joint venture isn’t limited to equity ownership. The health systems developed a care quality program designed for community hospitals and launched a number of clinical affiliations across the hospital network, Dill added. “Everything takes place at the hospital level when it comes to day-to-day decision-making,” he said.

Autonomy was one of the sticking points that led to the breakup of Renton, Washington-based Providence and Hoag, a small Southern-California based system. Hoag separated from the 52-hospital system on Jan. 31, about nine years after they combined. Providence’s centralized governance model allegedly stripped Hoag of local decisionmaking authority.

There had been a series of cultural, financial and operational clashes, Hoag executives said. As part of MarinHealth’s split from Sutter Health in 2010, the hospital sued the Sacramento, Calif.-based system, alleging it had illegally diverted funneled $120 million from MarinHealth. About three years later, a judge awarded the MarinHealth $32 million.

MarinHealth, which has Marin County’s only designated trauma center, is buoyed by a strong commercial insurance payer mix and benefited from Marin County residents’ financial support. That has contributed to its relatively strong financial performance compared with its peers. It had more than 100 days cash on hand in 2021, compared with a median of 27 days cash on hand across hospitals of similar size and makeup, according to Modern Healthcare’s Data Center.

Independence ensures that MarinHealth can keep decision-making and investment local, Klein said.

“Partnerships like the one with UCSF allow us to be nimble and make decisions on the fly,” he said. “It means that our profits are invested back in hospital.”