Strategic alliances and joint ventures why make when you can buy? For-profit companies—especially other than healthcare—recognize strategic alliances and joint ventures as important approaches to supplement internal capabilities and progress quickly in product and market development or cost control

Healthcare Financial Management, August, 2005 by Alan M. Zuckerman

In the for-profit world, it is standard practice to explicitly consider whether corporate goals can best be achieved through a "make" or "buy" strategy or some combination of the two.

However, in the not-for-profit healthcare sector, "make" is almost always the first choice and sometimes the only choice. "Buy" is rarely considered, and most often contemplated when all other avenues have failed. And both strategic alliances and joint ventures, in which control is less direct than in other "buy" forms, are almost always the last choice. What accounts for this bias, and what can be done about changing it?

Consider these examples of productive healthcare strategic alliances and joint ventures.

Consolidated Health Services, Cincinnati.

Consolidated Health Services is one of a number of significant subsidiaries of TriHealth, a large Cincinnati health system. Consolidated, which oversees TriHealth's burgeoning home care division, is rapidly growing through three main strategies, one of which is partnerships with other hospitals and health systems that have struggling home care businesses. Consolidated has well-developed systems and processes for managing home care services effectively and in a financially beneficial manner. It has formed four partnerships to date with other hospitals and health systems outside Cincinnati to jointly provide home care services. Early results from these partnerships show the expected financial improvement and quality and patient satisfaction gains. Consolidated believes it has an excellent model on which to continue to expand revenue and profitability, and provide well-regarded and vital community service.

Owensboro Medical Health System, Owensboro, Ky.

Owensboro Medical Health System is a large hospital serving a sparsely populated, predominantly rural area. When it decided to raise its scope of services in cardiovascular care to a tertiary level in 2004, it determined that the fastest and best way to accomplish this task was with a capable, recognized partner--Jewish Hospital in Louisville, Ky. Jewish Hospital provides management for the Owensboro Medical Health System heart program and medical oversight for cardiac surgery, while its related cardiovascular group recruits and places surgeons in Owensboro.

Philadelphia International Medicine, Philadelphia.

Philadelphia International Medicine is a partnership of many of the region's teaching hospitals and leading physicians who joined together to make comprehensive, high-quality health care available to the international community. This unique arrangement has allowed Philadelphia providers to be a destination of choice among international physicians and patients for treatment.

Just What Are Strategic Alliances and Joint Ventures?

According to Peter Ginter, Linda Swayne, and W. Jack Duncan (Strategic Management of Health Care Organizations, 4th ed., Malden, Mass.: Blackwell Publishing Inc., 2002, p. 240), "'strategic alliances are loosely coupled arrangements among existing organizations that are designed to achieve some long-term strategic purpose not possible by any single organization." Alliances fall short of more formal combinations of organizations such as mergers or even joint ventures. Although strategic alliances present significant management challenges, Ginter and his co authors also point out their advantages: "shared learning, access to expertise not currently 'owned' by the organization, strengthened market position, and direction of competitive efforts toward others instead of each other."

According to the authors, "a joint venture is the combination of the resources of two or more separate organizations to accomplish a designated task.... When projects get too large, technology too expensive, or the costs of failure too high for a single organization, joint ventures are often used." Although the term joint venture has become commonly associated in health care with physician-hospital deals, it applies to a wide range of interorganizational arrangements and is frequently found outside physician related ventures.

The chart shows where strategic alliances and joint ventures fit in the range of affiliation options for healthcare organizations. As the chart indicates, these arrangements are at the low end of interdependence between or among cooperating organizations and are generally narrowly constructed toward one or a few ends, rather than comprehensive in scope.

A Good Way to Grow Business

In what circumstances can strategic alliances and joint ventures be a particularly productive and successful way to grow business?

* In most situations, there will be an undeveloped or underdeveloped market. In other instances, strategic alliances and joint ventures will be a competitive strategy--moving business more directly from existing providers, especially to a more convenient alternative for the targeted service population.

* Speed of development is often a key consideration in these cases. Usually, concern exists that the opportunity is so great or obvious that it will be recognized and pursued by others in short order.