Navigating Partnership Options in New York State: Strategies & … · 2017-11-15 · C. The Range Of Strategic Partnership Options: From Virtual Service Partnerships To Mergers II

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MCTAC OPEN MINDS Partnership Event

November 13, 2017 | 9:30am – 3:30pm ET

Joseph P. Naughton-Travers, Senior Associate, OPEN MINDS

Navigating Partnership Options in New York State: Strategies & Best Practices


I. Why Partnerships & What Type Of Partnerships? A. Key Reasons For Partnership In Today's Healthcare MarketB. Partnership Decisions In The Context Of Strategic PlanningC. The Range Of Strategic Partnership Options: From Virtual Service Partnerships

To Mergers

II. Case Studies & Key Steps In Selecting A PartnerA. Case Studies In PartnershipsB. Two Typical Approaches To Partnership – Planned & OrganicC. More About Mergers & Acquisitions: Key Issues, Best Practice Steps, & Due

DiligenceD. Three Key Takeaways

Agenda

I. Why Partnerships & What Type Of Partnerships?

A. Key Reasons For Partnership In Today's Healthcare Market


Market Drivers For Provider Partnership & ConsolidationWhat’s driving the push for provider partnerships and consolidation in today’s marketplace?

– Preference for service delivery models that focus on the integration of primary care and behavioral healthcare and coordination of services for complex consumers

– Reimbursement models focused on value-based payment methodologies

– Increased use of competitive bidding and selective contracting by payers

– Consolidation among health plans and health care systems creates new competitive pressures in the rest of the health and human services market

– Providers looking for economies of scale and greater financial strength to support investments in infrastructure, staff, and development


In Particular, Mergers & Acquisitions Are On The Rise in Healthcare!

Healthcare M&A activity exploded in 2015– 14% growth in total health care activity –

from 935 transactions in 2014, to 1,498 in 2015

– 58% growth in behavioral health care –from 24 in 2014, to 38 in 2015

– 104% in managed care – from 22 in 2014, to 45 in 2015

Consolidation has been seen by many CEOs as a strategy

necessary for long-term survival given the changing environment in health and human services –

including more value-based reimbursement, more managed

care, and decreased funding.


The Benefit Of Economies Of Scale

Economies of Scale: The phenomenon that production becomes more efficient as the number of goods being produced increases.– Larger organizations have the ability to lower their cost per unit – thanks to

the ability to spread their overhead expenses over a larger number of units.

– However, organizational size doesn’t matter without strategy – there are many models that can achieve economies of scale, but your path to partnership and collaboration needs to be part of an overall long-term sustainability strategy.

“There is nothing so useless as doing efficiently that which should not be done at all.”

– Peter Drucker

B. Partnership Decisions In The Context Of Strategic Planning


What Is Strategic Planning?

Strategy is the plan for achieving a goal, usually over a long period of time, through creation of a unique and valuable market position– Conceptual and directional

– Developed to achieve mission, vision, and objectives

– “Nimble” or “sudden” strategy

– A corporate treatment plan!

Tactics are the action items in the strategy implementation process

Strategy Tactics

Doing

Small Scale

How

Easy To Copy

Planning

Large Scale

Why

Difficult To Copy


Goals Of Strategic Planning

Assess Internal Capabilities &

External Environment To Determine Best

Use Of Resources To Meet Strategic

Objectives

Make Sense Of & Plan For The Future

Improve Decision Making Processes & Day-To-Day Problem

Solving

Promote Effective Stewardship

Align Board & Staff


Key Questions For Long-Term Strategy

• What do we want to do for consumers? • How do we want to be viewed from an internal and external perspective?• What are we currently doing that is not being conveyed?

Mission

• Where do we fit in the service system?• Where do we fit in the reimbursement system?• What does the long-term (future) look like?

Service Delivery

• How do we address competition?• Is our proposed price attractive compared to the competition?• Do we have superior ‘performance’ – for consumers and payers?• Is our marketing model attractive – in terms of convenience, rate structure,

service features, etc.?• Do we have an attractive brand?• Will consumers choose us?

The “Reality Check”


Strategic Planning & Management In Today’s Healthcare Environment1 • Develop vision of future competitive advantage and market positioning

2 • Scenario-based strategic plan incorporating alternate future positioning options

3• Detailed plans – marketing, financial, operational, I.T., capital, HR, etc. – to implement strategy

and future vision

4• Key performance metrics and metrics-based management to track strategy implementation,

and allow for mid-course adjustments

5• Optimization of current operations to keep current programs as competitive (and profitable)

as possible, as long as possible

6 • New service model development to support future vision

7 • Collaborations and partnerships as needed to facilitate new market vision


Partnership & Consolidation As A Strategic Issue

Doing more of a service that is losing money won’t necessarily make it profitable. • Being bigger in this

instance is only useful if it’s part of a strategy to reduce service cost or gain market clout to raise pricing. If the size doesn’t come with enough economies of scale to reduce the effective cost of service, the strategy won’t work.

Adding services and programs unrelated to your mission could result in more problems for marketing and management. • Being bigger can’t only be

about a number. Some organizations in the field are big but not sustainable because they are diversifying without a strategic plan.

Increasing size may negatively impact the ability to innovate or adapt. • Being bigger has a

disadvantage – big is rarely nimble. Larger organizations can be slow to change course, and in a market filled with policy changes, technology innovations, and shifting payment and service delivery models – the ability to adapt is a necessity.


Size Alone Is Not A SolutionLarger organizations can spread the “overhead costs” for technology, financing expenses, compliance, marketing, legal counsel, and other core competencies over a larger revenue base – which in many cases gives them a lower unit cost.

However, not all of the “large” organizations that are a result of these mergers and acquisitions are doing well – either from a service delivery perspective or a financial perspective.


Being Big Isn’t A Strategy

In maintaining competitive advantage in a changing market, size and scale are just part of the equation

A large organization that is unwilling or unable to adapt to a changing marketplace is just as susceptible to failure as a small organization

C. The Range Of Strategic Partnership Options: From Virtual Service Partnerships To Mergers


Common Partnership Models In Behavioral Healthcare Virtual Service Partnership

Purchasing Cooperative

Joint Operating Agreement

Shared Services Organization (SSO) or an Administrative Services Organization (ASO)

Independent Practice Association (IPA)

Provider Consolidation

Merger Or Acquisition


Virtual Service Partnership

A virtual service partnership can be created between organizations to offer a specific service in the market or respond to a specific request for proposal (RFP). The organization providing the service to the payer is in essence "virtual." It may include a trade name that operates in the market by organizations that are joined by the partnership agreement.

This is essentially two or more providers bidding on a contract together and having no other level of integration.


Purchasing Cooperative

When organizations want to mutually benefit in the purchasing of services they can create a purchasing cooperative focused on a single objective of reducing costs through "volume" purchasing discounts.

This is a partnership that is limited to reducing expenses for some purchases.


Joint Operating Agreement

A joint operating agreement is a management agreement between two organizations.

The agreement typically allows organizations to share management services and some facilities while retaining separate identities and boards of directors.

Like a purchasing cooperative, it is another attempt to reduce costs for specific services or expenses.


Shared Services Organization (SSO) Or An Administrative Services Organization (ASO) Two other partnering models include creating a shared services organization

(SSO) or an administrative services organization (ASO).

These models are similar in intent to the joint operating agreement, but with the creation of a separate organization to provide management services.

Typically, shared services may include the following administrative functions:– Finance, accounting, and billing

– Information technology

– Human resources

– Quality management

– Corporate compliance

– Facility and vehicle management


Independent Practice Association (IPA)

An independent practice association (or IPA) is an association of individual providers and/or provider organizations formed in order to contract with key payers or managed care organizations (MCOs) to deliver services.

It is essentially a “strength in numbers and service array” approach do ensuring the individual providers and organizations can receive payments from the payers or MCOs.


Another method organizations will consider is a consolidation. This is where all participating organizations lose their identities and emerge as a new organization.

This may be an actual legal change to a company that acquires the individual organizations or a virtual consolidation where there is one surviving organization, but a new name is adopted to reflect the new merged entity.

Provider Consolidation


Merger Or Acquisition

This is where two or more organizations merge into one organization.

For not-for-profit organizations, it is essentially an asset acquisition where one organization disappears entirely (but no dollars are exchanged). In the case of for-profit acquisitions, there is typically a actual agreed upon cost for the purchase.

Whether the term merger or acquisition is used is simply linguistics. One organization does fully acquire the other.


Continuum Of Collaboration

Continuum of Collaboration

JOINT ACTIVITIES: One Time

JOINT ACTIVITIES: Ongoing

SHAREDOPERATIONS

ASO MERGE

Risk / Reward Organization Independence

II. Case Studies & Key Steps In Selecting A Partner

A. Case Studies In Partnerships


Case Study #1: Monarch’s Organic Mergers

Corporate offices located in Albemarle, NC

Non-profit

Provide services state wide

1,800+ staff

Budget of $85+ million

Contract with – Seven managed care companies

– Various insurance companies

– State and local governments

Presented by Peggy Terhune, Ph.D., Chief Executive Officer, Monarch, at the 2016 OPEN MINDS Executive Leadership Retreat in Gettysburg.


More About Monarch In North Carolina

Provide services statewide

Served over 32,000 people last year who have intellectual/developmental disabilities, mental illness, and substance abuse issues

Serve children and adults

CQL Accredited

Working on Joint Commission Accreditation


Monarch I/DD Service Locations


Monarch Mental Health Service Locations


Initial Opportunities To Grow By Acquisition

Three different proposals– Rutherford/Polk Counties 4 I/DD homes, 1 I/DD Apartment

2 MH homes, 1 MH apartment

– Rockingham Board 1 ICF, 3 I/DD Group Homes

– Winston Salem 3 Sheltered workshops, 2 ICFs, 3 Family Care Homes


What Monarch Offered Staff

Everyone to be hired unless– Negative criminal background check

– Failed drug test

– Unable to verify education

Seniority based on current employment

Same salary or better

No wait for health insurance

Retirement based on seniority with current company

Keep the senior managers


What Monarch Offered Consumers & Families Legal, ethical, and transparency

Answered ALL questions

Family involvement in many ways

Clear communication channels (CEO handed out her business card!)

Open to alternative ways of thinking about things

Best (or evidence-based) practice

Try to keep their existing staff


Who Have They Acquired?

Group Homes/Voc programs

Rutherford/Polk (6 res)

CenterPoint (3 day, 3 res)

Community Based Alternatives (3 res)

Sandhills (9 sites)

Mainstream (1 res)

PBH sites (3)

Davidson closing two companies (12)

Neuse/Onslow Carteret/ECBH

Beacon Center (5 res)

Smokey/private company (2)

Southeastern Regional (4 day)

Albemarle (5 day)

Behavioral Health

Caring Support

Dare (1 day)

MHA

Private Group Home Company (6)

Mecklenburg Open Door

Tru Behavioral

Johnston county agency

Guardianship agency

Johnston County Apartments

People helping people

Club Horizon

Pinetree


Case Study #2 & #3: Being Acquired

2. Club Horizon In North Carolina Being Acquired By Monarch

3. Wellspring Resources In Illinois Being Acquired By Centerstone Of America

Both case studies were presented at The 2016 OPEN MINDS Strategy & Innovation Institute in New Orleans.


Club Horizon’s Story

Single location non-profit

Clubhouse est. 2004

Located in rural suburb of Raleigh, NC (Wake Co.)

$300-500k budget funded by Medicaid UCR funding

Only clubhouse/PSR in Wake County, NC

Map Source: Google Maps 2016

Mission-driven: To increase community acceptance and improve the quality of life for adults with serious mental illness by facilitating meaningful work, education, housing, and social opportunities.


The Old Man Said: Merge Or Die

Ben’s Story…The Old Man said: Merge or Die


Why Monarch?

Service Sites

• 18 Outpatient Offices • 183 Residential and Day

Program Sites

Annual Budget

• $ 100 million

Patients

• Over 32,000

Staff

• over 1,800


Why Monarch?

IDD and Mental Health with broad spectrum service in North Carolina

Mission-centered:– Monarch is committed to supporting, educating, and

empowering people with developmental and intellectual disabilities, mental illness, and substance abuse issues to choose and achieve what is important to them.

Values-driven:– Dignity, respect, person-centered, safety, options,

accountability, innovation, listen carefully; integrity; willingness to change; all staff committed.


Mission Alignment

Meetings between Monarch staff and Club Horizon Board

Commitment to Club Horizon regardless of financial viability

Signed contract to return Club Horizon to independence if needed

Club Horizon Board re-branded to Friends of Club Horizon, allowed to keep $100K of seed funds for fundraising activities

Two Club Horizon Board members joined Monarch’s Board

All staff retained from Club Horizon – significant investment in training and professional growth


WellSpring Resources: Organization Overview

Located in St. Louis Metro East in Alton, Illinois

Annual revenue of approximately $10 million

160 employees

Served 7,600 unduplicated clients per year

Service lines include:– Outpatient mental health and substance use services

– Psychiatric and medical services including MAT

– Residential and housing services

– Crisis services

– Integrated health home services

– Community and school-based services for children and families


Environmental Challenges & Opportunities

After successful implementation of an open access intake model, the organization’s annual revenue, clients served, and employees increased by more than 50%.

In spite of growth, they were not at an optimal size to attract managed care contracting opportunities and found themselves missing out on funding opportunities with a broad, state-wide focus.

While they had lofty goals, they struggled with having resources needed to achieve these goals, especially in the following areas: IT, EHR, data analytics, finance and cost accounting, contracting.


Initial Growth Strategy

They acquired the state contracts of a community behavioral health center located just north of them when they closed their doors.

Initial strategy was to discuss possibility of joining forces with organizations who shared their mission and values, were geographically close to them and were smaller; they were looking to lead and acquire.

They were looking to grow annual revenue by 150% within a five year period though mergers and ongoing service line growth.


New Growth Strategy

After some discussions with smaller organizations in the area they came to the following conclusions:– They were struggling to find partners who

shared there vision and had the revenue size to help achieve their 5-year goal

– As smaller organizations, they were all struggling with similar pain points and joining together might exacerbate those weaknesses rather than make them stronger

– They needed to change their thinking and approach, and look for stronger, more complimentary partnership opportunities if they were going to achieve the 5-year goals


Finding The Right Partner

They had been approached by a few larger organizations and also identified a few organizations they thought might be a good fit

They completed preliminary research and engaged in conversations One organization quickly stood out…

– Similar mission, vision, and values– Reputation for quality services, and considered a leader in our industry – Commitment to local community and local representation on board– Organization had recently expanded into our state– National presence and brand will improve competitiveness– National policy development expertise and presence– Significant managed care contracting expertise


Making The Decision

Their board and key staff decided to sign a letter of interest with Centerstone

6-month period of due diligence and collaborative meetings to determine if partnership was the “right fit” for both organizations

All boards reviewed potential benefits and risks associated with merging and voted unanimously to proceed to a letter of intent phase of the process


Execution Of The Merger

Boards of each company voted to authorize their chief executive officer to enter into a letter of intent.

Final due diligence and regulatory approval was conducted within 60 days. Centerstone’s attorney prepared draft definitive documents in consultation with

the attorneys representing WellSpring Resources. Upon satisfactory completion of due diligence and regulatory approvals, the

boards of WellSpring Resources, Centerstone of Illinois and Centerstone of America authorized their respective chief executive officers to execute the final documents to make the affiliation effective.

The executed documents were then filed with the Illinois Secretary of State in accordance with Illinois law.

A two phase affiliation took place beginning July 1, 2015:– Phase 1 – July 1 to December 31, 2015: 2 companies via a single board

– Phase 2 – Beginning January 1, 2016: 1 company via one board


Challenges Faced

Confusion over new name and identity – need strategic internal and external marketing plans

Retaining top talent throughout the merge process

Aligning bonus and incentive programs

Aligning benefits and other “perks” that are ingrained in the culture

Cultural differences not initially identified in pre-merger process

Aligning and transitioning systems – goal is to create efficiencies

Moving from “us” vs. “them” to “we”


Case Study #4: Forming An IPA/ASO

Five behavioral health providers

The state is moving from a fee-for-service, managed Medicaid system to a regional, integrated care model(Just like New York State!)

A single entity will manage and pay for behavioral health services in each of the geographic regions.


Key Partnership Activities The five providers formed a new independent practice association

(IPA) along with some primary care providers in the local region. The IPA is poised to contract with

payers and MCOs as the state’s system of care evolves.

The providers have also purchased the same electronic health record system (EHR) and are jointly implementing the system with the capability to share data and coordinate care for consumers.

The providers are also looking at merging various administrative operations.


Case Study #5: Forming An Purchasing Cooperative Purchasing Partners of America A national group purchasing

organization founded in 1999 by five Colorado not-for-profit organizations The primary service offered is group purchasing:

– Negotiated contracts for food, office supplies, technology, advertising costs, and a host of other goods and services

Purchasing Partners of America is operated within United Social Enterprise, Inc., a Colorado Corporation founded in 2009 by Howard Shiffman, former CEO for Griffith Centers for Children.


Case Study #6: Assessing The Strategic Partnership Opportunity For Two Ohio Providers Situation:

– Ohio Counties making fewer referrals for all out-of home placements– Residential referrals only for the most difficult youth and children– Shorter lengths of stays for residential treatment– Increased emphasis on community-based treatment– Increasing demand for intensive foster care services as an alternative to

residential care– Continued growth of compliance and regulatory requirements – Increasingly strict regulations around restraint and seclusion – Growing demands for accountability measures by payers– Few, if any, rate increases– Ongoing pressure on public sector budgets


Provider Organization #1

157-year history of serving children Diversity of programming

– Residential programs– Foster care– Adoption– School-based mental health programs– Family health– Family preservation– Outpatient mental health – Early childhood center– ACT program for transitional youth– Intensive Home-Based Treatment


Provider Organization #2

58-year history of serving children

Broad range of programs– Different levels of residential care

– Foster care

– Outpatient services in a number of locations

– Permanent Family Solutions Net (PFSN)


Immediate Opportunities for Partnership

Develop an ongoing joint foster care parent recruitment and training initiative.

Develop joint staff training initiative providing community-based and residential-based training, contract compliance training, and selected clinical training.

Develop a joint venture to purchase and implement an electronic health record (EHR) system.


Long-Term Opportunities For Partnership

Establish an Administrative Service Organization (ASO) to provide to provide selected management services for both organizations.

Explore the possibilities of a merger with or acquisition of one or more organizations.


Case Study #7: Acquiring An Autism Provider

2015 Acquisition

$110 million east coast provider, with nearly 100% public sector financing, seeking to diversify revenues and services.

With growing insurance coverage for services for autism spectrum disorder, they decided they want to add these services to their continuum.

Target criteria for an acquisition candidate:– Autism spectrum provider– $5 - $10 million, for profit organization– Operating the same state


Case Study #7: Acquiring An Autism Provider

Process:– Using OPEN MINDS database, develop a list of

provider who met the three criteria (750+ providers)– OPEN MINDS sent blind letter to all providers, asking

them if they were interested in being acquired.– Within one week, 25+ providers responded with

interest.– Five providers maintained interest and were

introduced our customer.– Three viable options remained, and one was selected

and acquired within a six month period.


Case Study #8: Due Diligence To Determine Whether To Complete A Merger 2017 (in process)

$80 million Midwest provider, considering a merger with a financial failing provider in adjacent county.

Key risks:– Target agency is having major cash flow problems and has some major debts with

an EHR vendor.– Organizations from outside the state are expected to acquire the agency if this

organization doesn’t proceed with the acquisition.


The Due Diligence Process

Process:– Lengthy due diligence for reviewing all areas of

finance and operations for the agency to be acquired.

– Weekly calls with the executives to address several key issues: proposed organizational chart for a merged organization and board leadership and composition.

– Developing three year pro forma financials for the merged organization to determine financial feasibility.

– Plan is to review all the due diligence findings and financial projections within the next two months and present to boards of directors to determine whether or not to proceed.

– Messy discussions about leadership, structure, and board composition!


Case Study #9 : Integration Post-Merger Planning $70 million, for-profit provider on the east coast Using venture capital funding, they are planning to acquire 3-5 providers

each year to reach $150 - $200 in annual revenues within three years. Two current acquisitions being completed Are developing formal integration plans for all acquisitions:

– 90-day, 180-day, and 365 day targets for all key steps of integration– Detailed steps for all administrative departments (IT, finance, HR,

Quality/Compliance)– Clinical program transition plans to corporate, best-practice models for service

delivery and operations– Shift to corporate EHR within 180 days.– Using some outside resources for the integration process, turning over operations

to staff once the integration steps are completed.

B. Two Typical Approaches To Partnership – Planned & Organic


The Planned Partnership Process

There is a formal process of defining the criteria for the partner and then seeking out providers that fit that criteria. Typically, this may include:– For-profit versus not-for-profit organizations

– Size in terms of revenues

– Geographic location(s)

– Service lines

– Clinical specialties and expertise

– Key contracts, provider numbers, licenses, etc.

It is a very active process of seeking potential partners, vetting them, and proceeding with the partnership process.


The ”Organic” Partnership Process

This are opportunities that present themselves, not the result of a formal search process. For example:– Other providers actually seeking to be acquired contacting your organization.

– “Failing” providers who may not be able to continue to operate services.

– CEO retirements leading the board of directors to consider mergers.

– Geographic factors pointing to likely partners in the market

While the opportunity may be organic, rather than a formal search process, the strategic, vetting, and due diligence process should be the same.

C. More About Mergers & Acquisitions: Key Issues, Best Practice Steps, & Due Diligence


Key Issues For The Merger & Acquisition Process


Benefits Of A Merger

Increase financial strength

Continuation and/or expansion of programs

and servicesIntegration of services Reduced operational

costs

Reduced donor fatigue with fewer

organizations asking for money

The opportunity to rebrand

Expansion of geographic/demograph

ic reach

Elimination of a competitor for funding

Elimination of perceived duplication of services

Address delivery weaknesses

Open the door to new ideas and innovation


Risks Of A Merger

Negotiations may ultimately fail

Merged organizations may prove incompatible, never achieve a successful integration

Cost savings may never actually materialize

Tensions between leadership and personnel may never subside and eventually will interfere with operations

The public, constituents, and donors may have a negative reaction 4. A tendency to look at mergers reactively, as a way

out of financial or leadership problems – instead of proactively, as a growth and positioning strategy

3. A failure to find the right partner to merge

2. A lack of funding for due diligence and post-merger integration

1. A lack of knowledge about how to approach, plan, and implement mergers

Top 4 Reasons Why Mergers Fail:


Members’ Participation & Success WithMergers & Acquisitions (M&A)

41.7%

16.7%

11.1%

30.6%

Has Your Organization Been Part Of A Merger Or Acquisition?

Yes, currently or within the past 4 yearsYes, within the past 5-10 yearsYes, within 11+ yearsNo

95.7%

0.0%

4.3%

What Was The Outcome?

Successful

Failed

Still in the contracting/negotiation phase


Have Member Organizations Ever Hired An M&A Broker To Assist With A Merger Or Acquisition?

9%4%

0%

87%

Yes, this year or within the past 4 years

Yes, within the past 5-10 years

Yes, within the past 11+ years

No


Key Challenges Faced By Members During M&A

1 • Cultural integration/differences

2 • Merging boards of directors

3 • Branding

4• Consolidating practices, policies, and

proceduresOther challenges noted include:

• Making time for system integration (billing, human resources, etc.)• Merging of salary plans, pensions, etc.• Agreeing to mutually beneficial terms and conditions• Fully understanding financial challenges of the organization being acquired• Adequacy of the due diligence process


Members Currently Looking To Merge, Acquire, Or Be Acquired

12.5%

34.4%

0.0%

21.9%

31.3%Yes, merge

Yes, acquire

Yes, be aquired

Yes, open to anything - merge,aquire, be aquiredNo

0% of responding members mentioned they were trying to avoid a merger or acquisition


Key Merger/Acquisition Questions To Consider

Is your organization looking to acquire or be acquired?

Does the potential partner organization fit with/support our mission?

Do I have a strategic reason for this merger or are we growing for growth’s sake?

Have we done our homework on the other organization?

What will we gain toward the accomplishment of our immediate and long-term goals?

How will a merger be perceived by the public, our financial supporters, payers, and consumers?


More Questions

Can we afford the acquisition or merger? How will it be funded?

Will the combined organizations have the resources to address the needs of both organizations?

Is my board fully bought into this and willing to actively participate?


Best Practice Steps To Merger & Acquisition Process


Step #1: Identify Merger Candidate Organizations What is the profile of an ideal provider for consideration for a

merger?– For-profit or not-for-profit

– Size in terms of revenues

– Geographic location(s)

– Service lines

– Clinical specialties & expertise

– Key contracts, provider numbers, licenses, etc.

Identify provider organizations that meet the target criteria.

Determine how to approach and contact target organizations.


Step #2: Initiate Discussions With Target Organizations (”Dating Phase”) Non-disclosure agreements are usually signed.

May have agreement of ‘exclusivity’ for a specific time period during this dating phase.

Key objective is to determine if the merger is a reasonable possibility for both organizations.

This Dating Phase should not go on forever. The parties should be able to determine whether or not there is a likely fit within months, not

years.


Merger Deal Breakers: Three Key Issues

Chief Executive Officer• Who will be the surviving CEO?

Name• What will be the name of the surviving organization?

Board of Directors• What will the composition of the board of the merged

organizations?


Step #3: Signing The Letter Of Intent To Merge(“Engagement Phase”)

At this point, the executives and board of directors have agreed to a merger pending the due diligence process.

The Letter of Intent usually includes key areas of agreement and a specific time frame to complete the due diligence and make a final decision to execute the merger.


Step #4: Conducting Due Diligence(”Investigation Phase) This is the phase where a thorough due

diligence is conducted and documented.

There are two key goals here:– Ascertain that there are no problem areas that

would make the merger/acquisition a bad idea.

– Determine financial feasibility of the merger/acquisition.

• Typically, this due diligence process can be completed in 60-90 days.

• The complete findings of the due diligence process should be presented to the executives and boards of directors so a final decision can be made about where to proceed with the merger/acquisition.


Step #5: Develop & Execute The M&A Agreement (“Pre-Nuptial Phase”)

At this point, the executives and board of directors have agreed to a merger pending the due diligence process.

The Letter of Intent usually includes key areas of agreement and a specific time frame to complete the due diligence and make a final decision to execute the merger.


Step #6: Implement The Merger/Acquisition(“Marriage Phase”) The final steps are to actually complete the merger/acquisition and

move on the all of the steps of integration.


Due Dilligence


Key Components Of The Due Diligence Process

Company Information

Financial Information

Administrative Operations

Clinical Operations


Company Information

1) Review Articles of Incorporation and other corporation documentation.

2) Review complete Chart of Organization, including salaried FTE’s and independent contractors.

3) Review Balance Sheet to identify key assets and liabilities. – Review documentation on key assets.

– Review documentation on key liabilities, including loans.

– Review bank accounts and bank statements for previous twelve months.

4) Review documentation regarding any business relationships, joint ventures, or other contracts.

5) Review leases for property and equipment.


Company Information

6) Review and investigate any pending, threatened, or completed litigation that has occurred in the past five years.

7) Review any consent decrees, judgments, other decrees or orders, settlement agreements and other agreements to which the organization is bound.

8) Review all payer contracts.

9) Review a listing of all officers, directors, or other key employees and related resumes and employment history with company, including any key employees who have left the company in the past two years.

10) Review the details for any intellectual property, including any patents, trademarks, copyrights, etc.


Company Information

11) Review a list of insurance coverages in force (e.g., business interruption, directors and officers, fire or casualty, extended coverage, general liability, motor vehicle, professional liability, unemployment compensation, etc.), including names of carriers, brokers, description of coverage, amounts of coverage, amounts of premiums, expiration dates and significant conditions and benefits. Review details of any major claims or losses in past five years.

12) Review all information and correspondence regarding compliance with federal, state, or local environmental laws and regulations (including permits, permit applications, notices of violation, etc.)

13) Review any business, operational, or strategic plans.



1) Review monthly P&L statements for the past two years, including comparison of budget to actual data.

2) Analyze revenues and profit/loss by service line for the past two years.

3) Review most recently prepared budget.4) Review M&A overhead expense percentages for the past two years

as well as process for allocating overhead expenses to programs.5) Review a list of all payers as well as the top ten payers in terms of

total net revenues for the past two years.6) Review all federal, state, and local tax returns for the past five years.



7) Review any pending or previous tax issues that have occurred in the past five years (such as audits, extensions, penalties, etc.).

8) Review summary aged trial balance of the accounts receivables.

9) Review or calculate cash flow budget for the next 12 months.

10) Review inventory of all equipment and other assets.11) Review current accounts payable listing.12) Review process for accruing liabilities, including process for

calculating bad debt reserve for the accounts receivable.



13) Review a listing of all capital expenditures made in the past two years.

14) Review all outstanding debts and terms.

15) Review documents of title for any property owned.

16) Recast financial statements for the past two years, if needed, to adjust for any corrections or other changes to more accurately reflect profit/loss, based upon due diligence findings or other issues.


Administrative Operations – Finance

1) Review any policies and procedures for all key areas of finance:– Accounting & audit

– Billing

– Purchasing

– Accounts Payable

– Payroll

2) Review process for tracking, reporting, and billing services.

3) Review billing and collection processes and staffing.

4) Review private pay policies and processes, including any sliding fee schedules.


Administrative Operations – Finance

5) Review accounts payable vendor listing, including total amounts paid to all vendors over the past two years. This should include a review of total payments in the past two years to any independent contractors.

6) Review payroll listing, including total amounts paid to all employees for the past two years.

7) Review information about any tax advisors or accountants and any related professional services agreements.

8) Review reports from any independent audits conducted in the past five years.


Administrative Operations – Human Resources

1) Review any policies and procedures related to human resources.

2) Review employee manuals or handbooks.

3) Review all HR related forms and documentation for:– Hiring employees

– Evaluating employees

– Disciplining employees

– Terminating employees

4) Review any employee agreements, collective bargaining agreements, severance agreements, compensation agreements, or other similar contracts.



5) Review all job descriptions.

6) Review history of any employee or labor complaints or grievances for past two years.

7) Review history of worker’s compensation claims paid out in the past two years.

8) Review staff turnover rates by position for the past two years.

9) Review details about any bonus or compensation plans and payment amounts for the past two years.



10) Review any confidentiality or non-compete agreements.

11) Review any loan agreement with employees.

12) Review benefits packages, including detailed review of insurance plans and contracts, retirement plans and contracts, profit sharing or stock option contracts, etc.


Administrative Operations – Quality & Compliance1) Review any quality management plans and

processes.

2) Review corporate compliance plans and processes.

3) Review policies and procedures for technical and quality audits of consumer medical records.

4) Review findings and action plans from quality and compliance audits from the past two years.

5) Review details of any critical or unusual incidents for consumers served in the past two years.


Administrative Operations – Technology

1) Review listing of all technology assets owned or leased, including personal computers, servers, mobile devices, telephones, etc.

2) Review list of key software applications in use.

3) Review technology infrastructure.

4) Review any technology equipment, software, or service contracts.

5) Review all technology related policies and procedures, including those related to ensuring privacy and confidentiality.


Clinical Operations

1) Review policies and procedures related to medical records.

2) Review all medical record forms, including all assessment, treatment planning, service documentation, and discharge forms.

3) Review processes for accessing psychiatric and medication services.

4) Interview clinical leadership to discuss treatment philosophy.

5) Conduct a select audit of medical records to assess the clinical and documentation quality.


Other Key Due Diligence Tasks

Merged organization chart

Integration plan for service lines

Merged board of directors

composition and leadership

Three-year merged

organizational financial

statements

D. Three Key Takeaways


#1 Strategy matters!

The New York State public behavioral health system is underdoing rapid and monumental changes in the coming years.

Your organization must have a current strategic plan that carefully evaluates internal and external factors and then results in high-level objectives and an action plan.

This should include a clear picture of your market-positioning – where your organization will fit into the New York healthcare landscape in 2-5 years.


#2 Explore Partners & Partnership Options

Your strategic planning process will help you identify if you need or could benefit from partnerships with other health care providers.

Clarify what partnership option or options make the most sense for your organization.

Determine what potential partners to approach and how to approach them.


#3 Be Thorough About Due Diligence & Execution Formal and thorough due diligence is during

the partnering decision-making and planning process. This is particularly critical for the mergers/acquisition end of the partnership models continuum.

Once a decision to partner (in whatever form) has been made, execution of the partnership arrangement must be carefully planned and monitored to ensure success.

Questions & Discussion

www.openminds.com 15 Lincoln Square, Gettysburg, Pennsylvania 17325 717-334-1329 [email protected]

Turning market intelligence

OPEN MINDS market intelligence and technical assistance helps over 180,000 industry executives tackle business challenges, improve decision-making, and maximize organizational performance every day.

Mental Health Services ▪ Chronic Care Management ▪ Disability Supports & Long-Term Care Addiction Treatment ▪ Social Services ▪ Intellectual & Developmental Disability Supports Child & Family Services ▪ Juvenile Justice ▪ Adult Corrections Health Care

into business advantage

Merging with a Hospital:Lessons from the Field

November 13, 2017MCTAC – Albany, NY

Fern Aaron Zagor, LCSW, ACSWPresident and CEOStaten Island Mental Health Society

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Staten Island Mental Health SocietyA Vital Provider of Services to Staten Island Children and Families

SIMHS is a 501(c)(3) not for profit organization that has provided services to Staten Island children and families for over 122 years. It is the recognized “go-to” agency for behavioral health and related needs for Staten Island children and families. SIMHS is the only children’s agency on SI licensed by 3 NYS Offices: Mental Health, Substance Abuse and Developmental Disabilities. SIMHS is the 3rd largest Medicaid provider in the borough.

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SIMHS – Services25 Programs; 21 locations; 6000 served

8 –OMH Licensed Clinics including several school-based mental health clinics

2 –OMH licensed Children’s Psychiatric Day Treatment programs

2 –OASAS licensed Substance Abuse Clinics

5 –OPWDD licensed Developmental Disabilities Diagnostic and

Treatment clinics and satellites

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SIMHS Services (cont.)

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• 4 Head Start/Early Learn/UPK educational programs• State Education Department Integrated classes for children

3-5 year olds with handicapping conditions• Specialized services:

• Court involved youth• Cure Violence• High-risk youth transitioning to adulthood (SafeTY.net)• Trauma Treatment for Children• Early Childhood MH

The Problem

By 2014, NYS Office of Mental Health (OMH) eliminated all deficit funding (COPS).Complicated by:

High Salaries1199Large Commercial Insurance PopulationCOPS Recoupment

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NYS OMH – 201451% of Children’s Clinics in Fiscal Jeopardy

26%

18%

5%

51%

Clinic Providers Serving Children Only (n=39)

Healthy

Concerned

Very Concerned

Distress

IMPACT ON SIMHSMEDICAID REVENUE LOSS - $11 MILLION

Confidential Document – Client Privilege

* FY 2015 Forecasted

Options Reduce expenses and increase revenuesRe-engineered at all levels. Reduced projected deficit from $2.2 million to

actual of $795,000 in FY15. Necessary but not sufficient. Current projected deficit for FY18 =

$520,000

BankruptcyConsidered, but not a good optionVery expensiveLoss of vital services to the community from a trusted provider

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Merger/Acquisition

Best Option – Acquiring partner must:Recognize our valueDeal with our UnionsHave deep pockets to help with deficits

Options (cont.)

The Agreement

Richmond University Medical Center and Staten Island Mental Health Society have been working towards a full acquisition merger of SIMHS into RUMC. RUMC is adjacent to SIMHS – separated by a “broken” fenceA Merger Agreement was signed on April 5, 2016. A Management Services Agreement was signed 3/31/16 to begin transfer of licenses prior to close of merger

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Benefits

What SIMHS brings - We are Very Desirable3rd largest Medicaid Provider in BoroughLicensed by all 3 “O” agenciesLargest provider of children’s servicesDesignated Vital Access Provider (VAP) $16 million in Property

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What hospital brings:Recognizes SIMHS value – SIMHS will maintain our name; programs and staff SIMHS, a Division of RUMCWill absorb liabilitiesWill support and help grow all programs and services – already happeningHigher hospital rates of reimbursement for most servicesInterest in expanding community-based and integrated health care services

Benefits

Process: Merging a complex CBO into a community based hospital has challenges.

A Management Services Agreement allows transfer of licenses prior to close of merger. SIMHS immediately benefitted from higher hospital rates for Article 31 clinic services.As Vital Access Provider, together with hospital, receiving over $9.9 million OMH funding to help with merger costs and fiscal stabilization.Requires consent from all licensing, regulatory, and funding sources for merger and agreement to transfer contracts to hospital.

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More Process

Weekly calls with all key stakeholdersA special thanks to OMH for providing the leadership and guidance Need for Strategic Planning and Project Director

Anticipated merger close: January 1, 2018

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LessonsLearned

Mergers are complicated You are not aloneThere are experts with more experience and expertise. Use them!!!Find an attorney specializing in merger and acquisitionsHire consultants as needed to help guide process and evaluate impact of merger and its processAdministration and operationsFiscalStaffProgram

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Identify Stakeholders ASAP•Board of Directors•Staff•Consumers•Community Residents and leaders•Media •Local, city, and state agencies and legislators•Funders – both private and public•Fundraising groups and individuals

123

Communicate, Communicate, Communicate•Be transparent

• Provide accurate information•Get ahead of the rumor mill

• People will fill info gaps with their own alternative facts•Craft your message and be clear

• Make sure hospital and you have same perception and message•Remember: All stakeholders are potential spokespeople

• They need accurate information

•Do not be defensive - no one to blame!• This is a good plan to save vital services – a true win-win

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Mergers can be expensive –Help is available

Look for sources of funding to helpPro bono attorney/firmGrants to support mergers costs, strategic planning, consultants, operationsState and local help

Remember your stakeholders. They want this to be successful.

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Identify Opportunities for GrowthMerger is mutually beneficial – You are stronger together!New opportunities can be identified prior to close of merger

Look for and take advantage of integrated health possibilities

Look for opportunities to increase joint healthcare footprint in community, especially those that need both entitiesSIMHS Examples: SAMHSA Child Trauma Treatment Clinic Grant, NYS Substance Abuse Medication Assisted Treatment for Adolescents, NYC Early Childhood Mental Health Clinics.

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The Devil’s in the DetailsThere’s a lot to do between Merger Agreement (contract) and Merger ClosingReach out to all licensing, regulatory, and funding sourcesDevelop a plan to transfer assignment of contracts and licensesDraft a letter of consent for funders acknowledging they are aware of

merger and agree to transfer funding in support of mergerStart working on integrating operations ASAPPolicies and ProceduresEHR ITStaffingPrograms CULTURE SHIFT!!!!!

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Most Important

Take Care of Your Staff!!!!!!!!!You can’t do this without themThis is hard and demandingIts’ easy to burn out Leadership will be pulled from regular responsibilitiesMake sure they know they are valuedProvide support Hire additional staff as needed to alleviate burden

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Thank You!Feel free to contact me:

Fern Zagor, President/CEOStaten Island Mental Health [email protected], x321

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mailto:[email protected]

North Country Behavioral Healthcare Network

Value Based Payment

Key ConsiderationsFor Collaborative

Processes


Barry BroganExecutive Director


James Button MSWChief Operations

Officer Citizen Advocates, Inc.


Value Based PaymentKey Considerations

For Collaborative Processes

Step 1VISION

Step 2VALUE

Step 3VARIETY

Step 4VIABILITY


Step 1VISION

For those working on sustainability in a VBP landscape the first step is to create a VISION.

To do so, one must ask a few self-effacing questions:

• What is our philosophy around serving others? • What are we building?• Who might share this vision with us?• What is our end goal?


Once you have a VISION, step 2 is to determine your VALUE PROPOSITION.

Questions to consider:

• What does our region need? Where are the gaps?• What do we have to offer? • Who would be interested in purchasing our services?• How do we objectively demonstrate our value?

Step 2VALUE


After creating your VALUE PROPOSITION, it is helpful to consider who you want to partner with.


• What services do we provide?• What services do we lack? • Which providers do we have existing relationships with?• How do we engage our competitors? • What resources will we need? Attorneys? Consultants?

Step 3VARIETY


Once you develop a VISION, you know your VALUE PROPOSITION and have found a VARIETY of partners, it is

important to determine how your process will remain VIABLE.


• How will we sustain our efforts?• How do we calculate cost?• Who can we sell our services to? • Which organizations will look for cover, which will provide cover?

Step 4VIABLE


KEY TAKE AWAYS – PARTING THOUGHTS• Do not let traditional thinking prevent you from envisioning something innovative• Operate with transparency and work within a shared decision-making model• Frequent Communication with stakeholders is key to your success• Be wary of language barriers and mindful of different organizational cultures• ‘Steady As She Goes’ – Be careful, deliberate and focus on execution• Rural Considerations – Leverage relationships; everyone at the table!

Preparing Your Organization for the Transition to Value Based Payments

Finger Lakes Area Counseling & Recovery Agency

November 13, 2017

13811/15/2017

13911/15/2017

RecoveryNet

• Substance Use Providers• Common Electronic Health Record• Open Access Collaboration• Grants and More…

11/15/2017140

Finger Lakes IPA

• FQHC’s• Behavioral Health

Providers• Highlights and

more…

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• Finger Lakes and Southern Tier BHCC

• Highlights and more…

Anticipated BehavioralHealth Care Collaborative

11/15/2017142

Region II Consortium of Alcohol and

Substance Abuse Services

DSRIP-Finger Lakes Performing Provider

System (FLPPS)


• Behavioral Health Workgroup

• CBO Advisory Council-VBP Pilot Project

• Innovations

11/15/2017143

Connections across RecoveryNet, FLIPA, Finger Lakes & Southern Tier BHCC, Region II

CASAS, FLPPS


Contact Information:

Martin Teller, MAExecutive Director, [email protected]

www.flacra.org

11/15/2017144

mailto:[email protected]

How to Become aPerformance Driven Organization A YEAR LONG EDUCATIONAL SERIES OFFERED BY MCTAC

Purpose of the Training SeriesProvides information to prepare agencies for Value Based Payment, including:‣ Supporting strategic use of limited resources ‣ Encouraging informed decision making‣ Emphasizing accountability to make a difference/impact‣ Encouraging an organization to take on meaningful

challenges‣ Preparing an organization for greater accountability as new

payers (MCOs, ACOs) emerge‣ Providing a framework for doing the right thing

Performance Driven Organization (PDO): Core Series

‣ Educational Series offered over the course of 2 semesters (each 6 months in length). Participants would be asked to register by a semester’s worth of work

‣ Offer 6 webinars in each semester (total of 12 over a year) that cover different elements of a Performance Driven Organization. ◦ Tools to support implementation offered and examples of “good work” being done by

agencies will be included‣ Hold 2 in-person sessions each semester (total of 4 over the year), each one

following the delivery of 3 webinars and each held in 4 different locations across the State. Experts on the topics presented in the preceding 3 webinars would be present to facilitate discussion, to discuss tools distributed and support Team Based work on those topics

‣ Overarching topics for each in-person session:◦ Culture and Collaboration◦ Effective Measurement Practices◦ Fiscal Management Practices ◦ Leadership Team Practices

‣ Continuous case study used ‣ Videos provided to support challenging topics‣ Team Based Learning deployed‣ Ongoing evaluation to support continuous improvement

Potential (PDO) 2018 CalendarMonth Week 1 Week 2 Week 3 Week 4

SEMESTER 1: Themes: Effective Measurement Practices AND Culture & Collaboration

January Webinar 1: Theme: Culture and Collaboration- Topic: Performance Driven Culture

Webinar 2: Theme: Culture and Collaboration- Topic: Collaboration

February Webinar 3: Theme: Culture and Collaboration- Topic: Human Resources

March Four In-Person Sessions held across NYS to work together on topics in recent webinars with focus on Culture and Collaboration

Office Hours Webinar to answer questions in follow up to in-person session

April Webinar 4: Theme: Effective Measurement Practices: Topic: Effective Measurement Practices

Webinar 5: Theme: Effective Measurement Practices: Topic: Continuous Quality Improvement Practices

May Webinar 6: Theme: Effective Measurement Practices: Topic: Practice Development and Management

June Four In-Person Sessions held across NYS to work together on topics in recent webinars with focus on Effective Measurement Practices


SEMESTER 2: Themes: Fiscal Management Practices AND Leadership Team Practices

July Webinar 1: Theme: Fiscal Management Practices: Topic: Revenue Cycle Management

Webinar 2: Theme: Fiscal Management Practices: Topic: Corporate Compliance, Security & Privacy

August Webinar 3: Theme: Fiscal Management Practices: Topic: Contracting & Negotiation

September Four In-Person Sessions held across NYS to work together on topics in recent webinars with focus on Fiscal Management Practices


October Webinar 4: Theme: Leadership Team Practices: Topic: Planning Webinar 5: Theme: Leadership Team Practices: Topic: Monitoring Population Characteristics

November Webinar 6: Theme: Leadership Team Practices: Topic: Marketing and Communication

December Four In-Person Sessions held across NYS to work together on topics in recent webinars with focus on Leadership Team Practices

Office Hours Webinar to answer questions in follow up to in-person

Documents

Navigating Partnership Options in New York State: Strategies & … · 2017-11-15 · C. The Range Of Strategic Partnership Options: From Virtual Service Partnerships To Mergers II