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Shared services: Creating cost efficiencies for health systems

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“Shared services is taking the benefits of a large health care system and sharing those efficiencies and best practices with other organizations. It’s putting competition aside and creating partnerships to provide high-quality care that is more affordable, which may also lead to opportunities to work even more closely together in the future.” –Curt Shaw, Vice President of Finance and Shared Services, Novant Health

The decision to unite in shared services springs from many of the same reasons throughout the health care industry. The challenges, too, are much the same. There are no rigid rules about structure, as proven by the experiences of representatives of these organizations that have forged their own way of working with other entities to gain advantages for themselves and their patients. An attorney who works with affiliating organizations attests to the importance of getting structure right for compliance and other purposes.

The professionals spoke about their experiences in a session of the Charlotte, N.C., Healthcare Provider Conference, which brought health care and business professionals to a fall 2015 gathering co-sponsored by Grant Thornton LLP, McGuireWoods LLP and AON. Among the topics was shared services and joint operating structures, with a panel moderated by Anne McGeorge, national managing partner of Grant Thornton’s Health Care practice.

The panel discussion was moderated by Anne McGeorge, national managing partner of Grant Thornton’s Health Care practice.  The representatives of organizations engaging in shared services described their unique models, common issues and benefits of shared services. Curt Shaw, vice president of finance and shared services at Novant Health; Mark Tribbett, CEO of Socius Health Solutions; and Holly Carnell, an attorney at McGuireWoods LLP, spoke to structural, operational and compliance concerns in shared services alliances.

Novant Health: Development of Novant Health Shared Services, the partnership arm of Novant Health Curt Shaw: “Novant Health was committed to growing our presence in the Southeast from the beginning. To do that well, we needed to take our various locations and markets and work to act as one system through consolidation and standardization. We started by standardizing infrastructure in supply chain, human resources, finance and revenue cycle, regulatory accreditation and information technology services. Next, we created corporate centers of excellence, a strong medical group and a systemwide patient care model.

Growth strategy going beyond M&A
“Those efforts provided the scalability and infrastructure that allowed us to grow dramatically from $1.4 billion in revenue to almost $3 billion in five years.

“Prior to the Novant Health Shared Services, merger and acquisition was our only growth model and it worked well for us, but we were missing out on other opportunities. Some hospitals reached out to us and said, ‘We want to partner with Novant Health, but we don’t want to give up our local independence or our local governance. Can you offer another model?’ That’s when we created shared services. 

“Shared services is taking the benefits of a large health care system and sharing those efficiencies and best practices with other organizations. It’s putting competition aside and creating partnerships to provide high-quality care that is more affordable, which may also lead to opportunities to work even more closely together in the future.

“We developed two models — the management model we’re all familiar with, and a more flexible and unique model: shared services. We allow hospitals and health systems to maintain their local governance and independence while benefiting from our infrastructure and best practices, so they can lower their expenses and access resources they may not be able to afford.

“Today, we have nine partners — four are managed hospitals; five others are shared services. We think the market has received our partnership models well. We continue to grow and see opportunities to partner with hospitals in and around our four-state core footprint and adjacent markets.” 

Socius: Keeping independence while embracing synergy Mark Tribbett described how shared services can bring together even fiercely independent participants: “At Socius, we’re developing a model that is focused on maintaining the independence of three large, complex, financially strong, clinically excellent and successful organizations. Two of the systems are academic medical center-based and one is based around a large community hospital. Among the three systems, there are 14 hospitals and over 33,000 employees with net revenue of around $5 billion.

Balancing independence and interdependence
“The reason they came together was that as they looked down the road, they wanted to remain independent because it’s the best way to fulfill their missions. However, they also realized they couldn’t do it alone, and that as large as they are, they didn’t have enough scale for the new world. So what we’re trying to do with Socius is to foster and strengthen independence while at the same time using a model that is highly dependent upon working closely together. That may seem contradictory on the surface, but the concept is sound in application.

“Socius will be the conduit between the organizations creating a virtual system — finding best practices and economies of operation — that strikes an optimal balance between independence and interdependence.”
–Mark Tribbett, CEO, Socius Health Solutions
“The scope from the outset has been focused in large measure around clinical redesign to get quality and outcomes improvement. We’re trying to drive the entire value equation, but the headliner truly is on the quality side. That often gives us our context as we work on reducing costs, be it supplies — in particular, physician-preference items — improving processes or addressing purchased services costs. The need to lower the cost base and find more efficient ways to deliver the care while improving outcomes and service levels is tantamount.

“Another element of our purpose is to position these organizations for the future. They need to be ready as payment and reimbursement approaches get reconfigured, as population health grows, as technology advances, and as health care consumers’ needs and expectations evolve. Some of these issues may not be today’s challenges, but they are all going to be front and center as we go down the road.

“Finally, running throughout our efforts to drive value and to position for the future is the need to create environments supporting innovation. Innovation applies to operations and care delivery, as well as to technology. The ability to foster and implement pragmatic and impactful innovation will be a key to our success.

“Socius will be the conduit between the organizations creating a virtual system — finding best practices and economies of operation — that strikes an optimal balance between independence and interdependence.”

McGuireWoods LLP: Solving legal puzzles Holly Carnell explained that McGuireWoods LLP makes sure that shared services organizations are structured and operating in a way that is compliant with health care laws:

“Different laws can be implicated. The first law [deals with making] sure that no purpose of the arrangement is to induce business. If a big academic medical center is sharing services with smaller community hospitals, the No. 1 reason can be to get referrals of the good cases to the academic medical center. You want to make sure of fair market value compensation and that the motivation is all the other great things — improving clinical outcomes, improving synergies and everybody figuring out how to collectively improve the operations of all the hospitals as opposed to getting those cases to one hospital.

"Layering on top of the legal issue — how are we going to govern this institution, who’s going to have control, and how are we going to deal with issues in the future?”

Grant Thornton LLP: Tax structure is an important factor Anne McGeorge, Grant Thornton Tax partner and the leader of the Health Care practice, named tax-exemption benefits and a caution: “We’ve got a number of clients that have different tax-exempt statuses involved. Some are set up as LLCs with the various nonprofit partnerships, and they remain flow-through LLCs. One has [earned] tax-exempt status. One of our clients figured out they could get a sales tax exemption if they were a cooperative, as opposed to a 501(c)(3) organization, so they’ve elected 501(e) status. They still get all the benefits of being tax-exempt, but they also avoid some of the local and state sales tax.

"There are state issues and regulatory requirements to heed, as well.”