The Apex

Traditionally, academic medical centers (AMCs) have been reluctant to expand their services beyond the main campus – whether domestically or internationally – for fear that growth will lead to brand dilution. Ironically, it is that very fear, over time, which may reduce their competitiveness in the marketplace, create stagnation and ultimately diminish the value of their brand.

It is without a doubt that reputable AMCs hold a unique position in the healthcare industry. In the top echelon are those with over a hundred years of experience and the ability to attract leading clinician scientists and other experts to a single location for a unified purpose. In this milieu, experts harness their collective talents to create a culture of innovation that fosters medical discovery and the highest quality of care and education.

It is for these reasons that many AMCs take a cautious approach to growth and expansion (via commercial ventures, strategic collaborations, mergers, acquisitions, etc.) In many years of working with AMCs (both internally and externally), I have often heard concerns such as:

• If our efforts require new staff, how can we ensure consistency in hiring talent?
• How do we transfer knowledge without burdening existing resources?
• If we license our name to a third party, can we guarantee brand protection?
• How do we maintain consistency in care quality and outcomes across sites?
• What are the legal and reputational risks if our partner commits negligence or wrongful acts?

These are valid concerns that must be addressed before proceeding with deals in any industry, not just healthcare. However, they are not foundational questions that should drive strategy. Strategy should be driven by broader questions, such as: “How will this venture further our mission of providing world-class healthcare, research and education to a broader community?” AMCs that do not approach strategy from this standpoint tend to fall into a protectionist mindset that stifles creativity and creates a condition of stasis. Furthermore, those that are doing well financially may also suffer from a false sense of security in the existing business model.

However, in industries that are undergoing rapid change, stagnation is not conducive to survival. As we have witnessed in recent years, market forces, technology, and government policy are threatening the security of the existing healthcare model. Accountable care, bundled payments, and narrow insurance networks – all of which have created pricing and cost pressures – are only the beginning. New technology, tools, and access (e.g., robotics, minimally invasive surgery, telemedicine, 3-D printed biologics, digestible sensors, urgent care centers) are creating more efficient and effective means of care delivery. Furthermore, in the foreseeable future, cognitive computing systems, such as IBM Watson Health, may revolutionize our ability to translate information into knowledge and make better healthcare decisions. This will undoubtedly impact clinical care, research, payments, staffing, operational costs, and a host of other factors.

Amid all of these disruptive forces is also the undeniable fact that competition is increasing. Through consolidation, partnerships and aggressive growth, large health systems (some with private equity and venture financing) are mobilizing and expanding market share, thus presenting additional threats to AMCs.

So what is an AMC to do? Obviously, growth for the sake of growth is never a good idea. Rather, AMCs need to strike the right balance between brand protection and growth; and also adopt some measure of risk tolerance. That balance will be different for each individual AMC, but requires a careful analysis of one’s core competencies, mission/objectives, competitive forces, changes in the local/regional market, and opportunities for growth.

To be clear, not all growth is the same. For example, independently opening a new hospital in another state is fundamentally different than signing a management services and brand licensing agreement with a third party in that same location. In the former, all risk and reward is borne by the AMC, whereas in the latter, the primary risk of the business is borne by the third party and the AMC bears the risk of non-performance on the management agreement. Moreover, the brand risk in the latter example can be mitigated by creating an affiliation tag line (the primary brand remains the partner hospital), auditing rights, key performance indicators, accreditation requirements, and appropriate disclaimers and termination clauses in the contract. Therefore, there are many ways to approach growth and expansion, some more cautious than others.

The bottom line is that if you remain ultraconservative, hoping that market forces and competition will pass you by and not impact your business, then you are just as likely to experience brand dilution than if you were to grow rapidly without focus.