In new era, Inova and Children’s team up instead of compete

Not long ago, if two health care companies both saw growth potential in the same market, they’d have gone to the mattresses in a zero-sum battle that would have cost both the winner and loser (and their customers) a lot of money.

But times have changed, and on Thursday Inova Health System and Children’s National Medical Center announced a new joint venture — a true 50-50 investment of $10 million each — to snag that growth. Both systems are eyeing the 2.5 million people in Northern Virginia, one of the country’s largest markets without a freestanding children’s hospital.

The startup struggles for Pediatric Specialists of Virginia LLC are minor compared with a theoretical de novo business. The new group will lease, not build, locations for three clinics and has hired staff mostly from Inova and Children’s existing specialist rosters. Also, the crucial task of signing new insurance contracts will be left to insiders with a track record of success at the parent companies.

And, of course, the risk is cut in half. Both companies will split any debt that’s taken on, and an equally balanced governing board will make decisions about the pace of future expansion.

“Having this amalgamate into one organization or the other organization, it did not make sense,” said Inova Chief Medical Officer Dr. Loring Flint. “This wasn’t a hospital merger, it was strictly talking about physician services. So a 50-50 partnership, creating a new corporation that could leverage the strengths of both, evolved.”

Not just anybody can develop a true joint venture, though. While health care systems often tinker with pilot projects or minor service lines with partners, egos frequently get in the way when systems discuss strategic alliances. But with governments, insurance companies and employers all demanding more for less out of hospitals, there’s simply not much incentive to go it alone any more.

Also, a true sense of equality kept the two sides negotiating toward a partnership, according to Flint and his equivalent at Children’s, Dr. David Wessel.

The negotiations picked up steam after Children’s appointed as CEO its vice president, Dr. Kurt Newman, in 2011. Newman, who has made suburban partnerships a key part of his strategy, initially reached out to an old medical school friend, Dr. Reuven Pasternak, then Inova’s top executive in charge of its Fairfax hospital campus, who then included others before he left for a new job last August.

“We didn’t start with that number (50-50),” Wessel said. “But I think the two partners came together as peers that each had things to offer.”

Put simply, Children’s has the depth and expertise in somewhat esoteric specialties such as gastroenterology, nephrology, genetics, hematology/oncology, and orthopedics. But it lacks a platform for rapid growth in Falls Church, Fairfax and Loudoun counties, and also doesn’t have the market clout to negotiate hard with insurers outside of the District.

Inova’s the opposite.

“We really tried to appreciate the fact that both institutions are bringing assets to this that while slightly different, are co-equals, and that made a big difference,” Flint said. “Appreciating that transcended the times when it got a little bit difficult.”


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