Doctor using new technologyHealth care is in the middle of what seems like a never-ending roller coaster of change. With new disruptions and disruptors emerging daily, traditional health systems have two choices: lean in and adapt or fall behind as the challenges of change in health care become insurmountable. Many health systems across the country are thinking about how they can modernize core operations while also embracing the shift to value-based care by expanding into new value-generation opportunities. 

At Memorial Hermann, embracing a range of partnerships has allowed us to benefit from external expertise and build a culture of innovation as we work to create healthier communities in and around Houston.

Partnerships and Value Generation

To drive profitable growth, health systems can modify traditional asset structures and business strategies to swiftly capitalize on emerging, faster-growing value-generation opportunities. They can also adopt alternative payment models and innovative approaches to better manage total cost of care. For many, the fastest and most efficient way to address these challenges is through inorganic growth opportunities (i.e., mergers, acquisitions, joint ventures, other affiliations).

Inorganic growth opportunities can take a variety of shapes beyond the classic horizontal integration model, where health systems merge. One opportunity for significant growth is through investments in care delivery sites or models outside or beyond traditional inpatient care delivering the right type of care at the right time, and at the most appropriate location to deliver better outcomes at a lower total cost of care. These include growing ambulatory footprints, care-at-home models, chronic disease management programs, high-performing primary and specialty care networks that can manage population health, integrated health and wellness services, digitally enabled self-service care models and risk-bearing entities to help create increased value with service delivery. For example, we created scale networks for ambulatory surgery centers, urgent care centers and home health and hospice through joint venture partnerships.

Strategic partnerships can offer a more immediate path to expanded or new service offerings. Specialized operators often bring significant tested capabilities and business models, as well as capital investment capacity. 

Innovative Business-Building Programs

Health systems are critical designers and enablers in bringing innovative models to market, but also often run on tight operating margins and sometimes lack the R&D capabilities and budgets of other participants in the health and health care value chains.

These gaps and opportunities have driven a proliferation of venture-backed investments, helping to solve significant care access and delivery needs (e.g., in behavioral health, women’s health and pediatrics). Health systems have a major opportunity to partner with these innovative companies in testing models to address unmet or new needs. For example, many of these companies lack the local distribution access common to health systems.

At Memorial Hermann, we have built an innovation hub that drives a culture of innovation within our system, rapidly evaluating potential solutions that address unmet needs and pain points in our market. We are also using the hub to address critical clinical, operational and administrative needs, such as improving bedside caregiver productivity and retention.

Health systems have a major opportunity to partner with these innovative companies in testing models to address unmet or new needs.

Strategic Direct Equity Investments

Another form of partnership that forward-thinking health systems are pursuing is direct equity investments that align with their overall business strategies.

For Memorial Hermann, supporting disruptive, innovative — yet proven — companies that are addressing critical health care challenges and enabling the broader transition to value is a key to accomplishing our mission goal of improving health for all.

Our investments have spanned several themes, including creating and enhancing value-based care models, developing disruptive clinical and non-clinical digital solutions that improve outcomes with a reduced total cost of care and building tools that enable moving care outside of hospitals into lower-cost settings with the same or better outcomes. For example, to date, we have invested in several innovative businesses that span several themes — value-based enabling companies that reduce total cost of care while improving population health for Medicare and employers, asset-light solutions that move volume outside the four walls of the hospital (e.g., urgent care, home health and hospice, and home-based infusion), solutions that improve access to various consumer segments (e.g., marketplaces) and improve their journeys, data and analytics that create value through efficiencies and more effective care delivery, and total consumer health that combine whole health solutions (integrating medical with behavioral health, pharmacy, genomics, food and transportation).

Successfully Executing Partnerships

At Memorial Hermann, we have learned a lot about how to effectively partner within these different models, and while the business nature of partnerships may vary, there are some common elements to every successful strategic partnership:

  1. Ensure mission alignment: Be clear and deliberate about aligning partnerships with the health system's overall mission and strategic direction.
  2. Clearly articulate the guiding principles for engagement and collaboration with partners.
  3. Diversify your capital allocation approach with a significant focus on adjacent business opportunities and emerging value pools.
  4. Create a diligence playbook for evaluating individual opportunities.
  5. Build capabilities to create, test and scale innovations with ongoing learning.
  6. Be very deliberate in defining key success metrics.
  7. Create internal capabilities to rapidly screen the market and evaluate potential partner companies for their differentiated capability sets.
  8. Develop a streamlined governance process to quickly evaluate and approve inorganic programmatic investments.
  9. Create a full-potential value creation playbook.
  10. Create a network of internal operational and functional champions who will ensure the realization of full potential from these partnerships and investments.

As health systems continue striving to create seamless and frictionless experiences for their patients, delivering true value in care and adapting to changing demographics and health trends, the most successful legacy systems will be those that find the right balance of internal innovation and external partnerships.

Final Thoughts

For Memorial Hermann, supporting disruptive, innovative, yet proven companies that are addressing critical health care challenges and enabling the broader transition to value—generating the best possible health outcomes at a cost that is affordable and equitable—is a key to accomplishing our mission goal of improving health for all.

About the Authors

Feby Abraham HeadshotFeby Abraham, PhD, is executive vice president and chief strategy officer for Memorial Hermann.

Amarjit Rai HeadshotAmarjit Rai is vice president of strategic investments and corporate development for Memorial Hermann.

This article was originally published in Becker's Hospital Review in January 2024.

Memorial Hermann’s Forefront Leadership Blog