Strategic Positioning

Strategic Alliances - A Spoke with Three Hubs

Lincoln General Hospital has since been sold to Community Health Systems and has been renamed Northern Louisiana Medical Center. The hospital is still in operation.

Key Takeaways
  • When the standard model does not work try reversing the model – i.e. "instead of being a hub with spokes, be a spoke with hubs."
  • Re-structuring and innovative solutions can be facilitated by monetizing assets that do not compromise the mission or control of the venture.
  • The strongest adversaries can become the best partners - convert adversaries to alliances.
Challenge

Lincoln General Hospital (LGH), in Ruston, North Louisiana along I-10, found itself financially compromised and in need of working capital to survive. The hospital had many strategic alliance options up for consideration, including divestiture to one of the three major tertiary centers in the region or to a for profit corporation. However, as a small hospital, LGH sought a solution that kept the decision-making and culture local.

Approach & Solution

Through Terry Newmyer’s service as a facilitator, a unique regional alliance was produced with all three tertiary centers on the periphery of Ruston, in towns like Shreveport and Monroe, which included a highly valued transfer of equity. Each of the three took a defensive position. None of them were seeking to own the small hospital outright, yet they did not want their competitors or a for-profit to own LGH either. Thus, with the administrative support of LGH CEO Alan Tuten, a deal was struck for LGH to sell 40% of the hospital with a 1/3 interest in the 40% to go to each of the three tertiary hospitals for a price of $3.5 million. In exchange, each of the three secured a single board seat on an eleven person board. To assure ease of access for patients entering care at LGH and needing transfer, LGH became a participating provider for all health plans of each of the partner hospitals.

Results
  • The local community retained the majority of board seats, keeping the decisions and culture locally controlled.
  • LGH won a lump sum $10.5 million of new capital to revitalize performance.
  • Gained access to payers that previously either ignored LGH or offered very low reimbursement rates.
  • Restored financial viability with cash improvement on the balance sheet and improved revenue through the alliance channels.