Restructuring for Flexibility: Transforming a Multi-Hospital Value-Based Care Entity

A multi-hospital value-based care entity (the "Entity") consisting of an Accountable Care Organization (ACO) and a Clinically Integrated Network (CIN) faced structural challenges as a result of its continual evolution as an organization. Historically, the ACO and CIN were structured as separate legal entities, but operated as a single unit as a result of all affiliated healthcare organizations participating in both the ACO and CIN. Specifically, the organization functioned as one with respect to finances, governance, and operations.

The historical operating structure came under stress when one of the existing participants desired to withdraw from the ACO, but continue participating in the CIN. Additionally, new healthcare organizations were contemplating joining the Entity, but did not want to participate in both the CIN and the ACO. This placed a similar strain on the historical operating practices.

Coker was initially engaged to provide a valuation of the Entity to facilitate these changes. However, it became clear that the current operating structure of the Entity, functioning as a single operational unit despite having two separate legal entities, necessitated more strategic and organizational support before a valuation could be completed. The funding and operation of the ACO and CIN were so intertwined that the allocation of current resources between the two entities could not be identified.

Recognizing this fundamental issue and its implications for future operations, Coker recommended a comprehensive restructuring to provide more operational flexibility.

Coker's solution was to restructure the Entity, forming a new management services organization (MSO) owned by the original Entity stakeholders. Thus, even if the stakeholders were not participating in both the ACO and CIN going forward, they could continue to hold an equity interest in the infrastructure that had been created over many years. All assets from the legacy entities (the ACO and CIN) were transferred into the MSO, which then entered into management services agreements with the ACO and CIN. These agreements allowed the ACO and CIN to function primarily as pass-through contracting entities, housing no assets and enabling participants to join or leave with relative ease.

Coker also helped establish different levels of participation, allowing hospitals to choose how they functioned within the ACO and CIN. These tiers had varying financial commitments and governance rights, accommodating the needs of the existing and new participants.

The process of change was not easy, working to align the interests of all stakeholders, yet the end result created an Entity that was nimble and able to adapt to future needs and opportunities.