An Inside Look at Three Strategic Partnerships

Practice owners illustrate the strengths and challenges encountered in strategic partnerships.

By Steve Stalzer, PT, MBA*

An ideal strategic partnership leverages the strengths of two entities to create something that is greater than that which could be created by either organization working alone. While partnerships in health care are not new, they have not been adopted in physical therapy as they have in other aspects of medicine.

This article highlights three partnerships that have helped practices expand their reach in ways that the owners likely would not have been able to do alone. Three practice owners replied to a series of questions to help illustrate the strengths and challenges encountered in strategic partnerships.

Marc Guillet is the founder and CEO of Agile Physical Therapy in Palo Alto, California. In addition to operating two freestanding clinics and eight clinics for a prominent health system, Agile provides onsite therapy at two prominent tech companies. Both are self-insured and have more than 10,000 employees on site. These partnerships have created significant referral and business diversity for Agile.

Sean McEnroe is the founder and the managing equity partner in a joint venture between ATI Physical Therapy and a prominent health system in South Carolina. “The health system was purchasing many of the physician groups in town. We had a long relationship with some of the physicians. We thought we could create something unique if we were all on the same team. With the increasing size of health systems, we knew we needed to be ‘in the room’ to be effective. We were interested in concepts like community sports medicine, comprehensive employer health solutions, and the early versions of total joint bundles. None of us could do this alone,” states Sean.

Mike O’Conner is an operating partner at Greater Therapy Centers in Texas. Mike shares, “We opted to form a strategic alliance with a few local hospitals to better align ourselves with the larger health systems in our region. There is a tremendous amount of horizontal and vertical integration in our region, and this was a strategic move to best position our organization for success in the future.”

Why did you choose this partnership and structure?

Marc: I have been forever worried about health-plan reimbursement, and with outcome-based reimbursement heading our way . . . now more than ever. This structure was viewed as generally low risk but with lower net margins, and clearly diversified our portfolio. We are not responsible for buying any of the equipment, supplies, or paying rent. It also has a captured referral base of patients.

Sean: We had previously held a management service agreement with another hospital. That relationship was profitable for us, but it was unstable. The contract had a limited term. We worked to build the business but never felt secure that we would keep the business at the end of the contract. In this next partnership, we knew we wanted something different. When we approached this health system, we were prepared with some of the terms that made sense for all of us. First, we wanted to set up a new company and have both the health system and the physical therapy group invest real dollars into the business. Second, we wanted equal representation on the board of directors for each party. Last, we wanted 100 percent control of the operating business (subject to some board approval items). In the end, the health system wanted the same things.

Mike: While exploring a multitude of options, the integration of our clinical services with a hospital seemed like the best direction as many of the physicians in our region are becoming employees or affiliates of the larger health systems. This move seemed to be the best direction to keep pace with the physician integration occurring in our area.

How has this partnership impacted your clinic?

Marc: My role of providing superior clinical care is now in the hands of each of our directors—my leadership team that oversees each primary site location. My role has shifted to creating great jobs for clinicians. With this partnership, we have been able to dictate how much time we spend with patients, the specialties that we want to treat, and provide jobs that are typically in a cool employment environment sometimes offering additional benefits to our staff like shuttle services and food (free or often subsidized).

Sean: Quite simply, it was a game changer. We still had to do all the things any practice does – create a great clinical practice, communicate with referral sources, build a community presence, take care of our employees, etc. However, we had the opportunity to be inside conversations about moving physical therapy earlier in the care pathway and building a network of integrated care to offer employers. Because this health system is an academic medical center, we were able to insert physical therapy into the training programs for physician education. This cooperation led to research projects and outcomes reporting that captured the entire patient journey. These types of deep, integrated endeavors would simply not be possible as independent entities.

Mike: This partnership has impacted our organization in a very positive manner. The added emphasis on quality and compliance has resulted in us being more diligent as we hold our clinics to JCAHO [Joint Commission on Accreditation of Healthcare Organizations, now known as the Joint Commission] standards to best align with the standards utilized by our hospital partners.

What are the strengths of this form of partnership?

Marc: The strengths are truly the guaranteed return on cost plus a margin while having very little upfront investment. You must be willing to start small. You will not make money off the first employee because you will attend meetings and must absorb the legal and startup costs associated with any new venture.

Sean: Being invested, equity partners allowed us to create the “equal footing” relationship that helped us grow a physical therapist–led business within a large health system. We were able to promote the type of practice that provides the best outcomes. When a decision needed to be made between investment and profit, we were able to control that process. By knowing we had stability, we were willing to make early investments that paid off years later. Whether that was starting a residency, implementing a data collection tool, or building a clinic in a future market, this partnership allowed us to take the long view of success.

Mike: There are a myriad of strengths to this partnership. First, this partnership allows you to be fully integrated into the hospital or health system. With the physician integration occurring in our region, it is becoming increasingly difficult to secure referrals from the employed or affiliated providers as they are strongly encouraged to utilize all of the ancillary services offered through the hospital and system. In addition, the increased emphasis on quality, outcomes, and compliance has made us even more diligent than we were previously as we strive to meet and exceed JCAHO standards for hospital outpatient departments.

What are some of the challenges of this structure?

Marc: The challenge as a contractor is not really being a true member of the team. Most companies will not share everything they envision, nor the full claims data for us to make the biggest impact. As the PT group on site, we are still viewed sometimes as a perk and not as a true medical service. From a clinical perspective, the focused age group of working professionals can limit the variety of exposure and the comorbidities to more simple cases.

Sean: All large businesses struggle with bureaucracy. Hospital systems are no exception. We had to be patient with driving change, asking for decisions, or creating momentum. The other significant challenge was a bit of a surprise. Being “in the system” was sometimes taken for granted. Our team still needed to create the world-class patient experience and promote the services of physical therapy. “The System” is only as good as each part. We had to make sure physical therapy was one of the best parts.

Mike: Any time you work with a large system, you can be challenged in dealing with the corporate machine. The speed and expediency with how things are addressed, such as ordering supplies from approved vendors, can be somewhat burdensome as you strive to meet the needs of a busy clinic. The hospital systems also have a process for everything, which can be challenging to navigate when looking from the outside in.

What advice would you give others seeking to grow through this channel?

Marc: You need a champion to get your foot in the door, someone that introduces you to the right people. The relationships we’ve established have been through changing the course of someone’s rehab outcome who happens to be an influencer at their company. Be willing to start small. We converted a massage room that was close to a fitness center and took a loss in the first two years.

Sean: Health systems can be significant forces in any community. If you have an opportunity to engage in that conversation, jump in. Most of these opportunities come from individual people meeting, exchanging ideas, and creating the seeds of next steps. This doesn’t always require a master strategy or complex infrastructure. If more health systems had partnerships with outpatient therapy business people, both our profession and the community would benefit.

Mike: I would encourage anyone considering growing through this channel to explore this avenue as a potential for growth, especially if physician integration into large health systems is occurring in your area. Although there are some challenges in working with a health system, the benefits far outweigh them.

Steve Stalzer, PT, MBA, is a PPS member and practice consultant with 8150 advisors. He has more than 20 years of experience in strategic growth, operational efficiency, and succession planning. Steve can be reached at steve@8150advisors.com.