For 50 years, Sierra Vista (Ariz.) Regional Health Center has been the hub of health care in Cochise County. But in 2008, the freestanding rural hospital confronted a major challenge: Space limitations thwarted strategic plans. A landlocked facility, SVRHC was unable to expand. Some modernizations had been made, but service lines became disjointed and inefficient. Patient throughput was hampered by the facility's few single rooms. Finally, the board understood that having a highly efficient, coordinated continuum of care from primary care to tertiary and quaternary services, all supported by information technology and state-of-the-art facilities, was essential to SVRHC's survival. But despite its financial stability, SVRHC was unable to meet the debt service of a replacement hospital.
This led the board to consider an affiliation. As board members explored the affiliation models available, additional benefits of a potential partnership emerged: support with service-line expansion, assistance with implementing new services and technologies, economies of scale, assistance with physician recruitment and development, access to evidenced-based practices, and strengthening market and competitive advantages. The board also believed that an affiliation could decrease the out-migration of patients to the larger Tucson market.
Still, board members had concerns about forming an affiliation. They discussed the impact on mission, vision and values; the loss of autonomy in governance, strategy, budget and operations; the impact on quality and customer service; and resistance from staff, physicians and the community based on the perception that they had lost their community hospital.
After much deliberation, the board concluded that the benefits of an affiliation outweighed the potential disadvantages and began to seek a partner. As a successful, well-run facility, SVRHC received much interest from suitors. Seeking a partner from a position of strength undoubtedly placed us at an advantage.
Long, Unhappy Engagement
Initially, hospital and board leaders looked close to home for a partner. Because of some existing professional relationships, SVRHC began discussions with Tucson-based Carondelet Health, an organization whose culture would complement SVRHC's corporate philosophy. Carondelet is a member of Ascension Health, the largest Catholic and nonprofit system in the country.
After several internal discussions, we concluded that Carondelet, along with Ascension Health, would be a good partner. However, many stakeholder groups were not involved in the discussions, which proved to be a problem later.
Before we completed the affiliation, the SVRHC board felt it would be prudent to enter a trial period. The CEO of our hospital became an employee of Carondelet, and one of our board members was asked to serve on Carondelet's board of trustees. No assets were transferred, but the two organizations established a working relationship. The engagement was to last two years, although either party could opt out at any time.
When the affiliation, called an integrated network agreement or INA, was announced to the community, the board anticipated a positive response to the potential for a new hospital. Instead, there was a tumultuous reaction to an affiliation with a Catholic organization, which would require SVRHC, a secular hospital, to follow Catholic Church medical directives related to reproductive and end-of-life services.
The furor was fanned by Merger Watch, a nonprofit organization that opposes secular-religious mergers that limit patient services. It was joined by the ob-gyn physicians on SVRHC's medical staff who argued that they had not been consulted and who wanted to continue to provide certain services in the hospital. Community members who opposed the merger on religious grounds added to the dissent. There were letters to the editor, picketing, a community rally, personal attacks on board members and calls for their resignations.
Amid all the controversy, the trial period with Carondelet lasted for about a year until the SVRHC board terminated it, largely because the main reason for entering into the INA was to build a replacement hospital, but it did not appear that this would occur in the near term.
A Better Match
SVRHC leaders and board members took a few months to reflect on the failed affiliation and then decided to make another attempt at finding a partner who could commit to building a new hospital.
This time, SVRHC's approach was more structured. We defined what we wanted, with whom we would and would not affiliate, and what the deal-breakers would be.
To ensure that an affiliation would result in a replacement hospital, SVRHC specified that the construction funds were to be escrowed at the time of signing. We also decided that all employees were to be retained and not terminated to make way for a new entity's employees; the medical staff would be protected; and local control would be preserved as much as possible.
Although previously only local, nonprofit organizations were considered, SVRHC broadened its search to include for-profit entities and those outside the state.
We identified 12 systems with which we were willing to consider an affiliation. Of the 12, seven indicated an interest in entering discussions and of those seven systems, five for-profits responded to requests for proposals.
SVRHC eliminated two candidates because they were not ready to commit to building a new hospital and were reluctant to provide funding up front.
Believing that time spent in reconnaissance is never wasted, we made site visits to two hospitals of each of the remaining three entities, traveling 9,000 miles. During these visits we met with hospital executives and board, medical staff and community members. The majority of these meetings took place without representatives from the parent entities.
When the visits were completed and the data assembled, we gave each entity an opportunity to make a final and best offer. There were two types of proposals: joint venture and long-term lease. The board opted for a lease transaction with Nashville's RegionalCare because it allowed local governance of the hospital and community ownership through a newly formed foundation. And with the lease proceeds paid up front, SVRHC will break ground on a new hospital this month.
Margaret Hepburn, R.N., M.S., FACHE (firstname.lastname@example.org), is the CEO of Sierra Vista (Ariz.) Regional Legacy Foundation and past CEO of Sierra Vista Regional Health Center. Lanny A. Kope, Ed.D. (email@example.com), is a director of the Sierra Vista Regional Legacy Foundation, past chair of the Sierra Vista Regional Health Center board and past chair of AHA's Committee on Governance.
Sidebar - 12 Lessons from SVRHC's Affiliation Journey