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Co-opetition

An emerging trend in health care

By David J. Voller, MBA, FACHE

Applications in health care

Applying this business theory in the health care industry might brings added levels of nuance and complexity. As the term co-opetition probably does not resonate in the vocabularies of most health care leaders, when given industry specific context, we might find the concept is not as foreign as it may seem. Two years ago, working as a consultant, this term first entered my vocabulary when it was mentioned by a colleague as we were assisting clients.

Fraught with the challenge many health care organizations face of losing independence and finding themselves at the table of a merger/acquisition, or even worse, closing their doors, many organizations facing these dilemmas are looking for ways to avoid them and actually thrive.

Becker’s Hospital CFO Reports, published in December 2021, identified 73 closures of rural hospitals over the past 10 years with a bit of an increasing trend. About 60 million people—nearly 1 in 5 Americans — live in rural areas and depend on their local hospitals for care. The number of rural hospital closures steadily increased over a four-year period, with a record-breaking 20 hospitals shutting down last year. In a rural setting, there may be less opportunity for co-opetition; however, many of the hospitals that shut down over the past decade still provide some health care services, such as urgent care, primary care or long-term care. 

There are several benefits to co-opetition.

In about the same period as the Becker findings, Deloitte published a report showing an annual average of 84 heath organizations had some sort of merger or acquisition. While such pairing of organizations is highly driven by building better economies of scale, aspects of ensuring high quality and better outcomes are still critical. 

The article further identifies through a survey done with health care executives who had been part of a merger and acquisition that 80% saw significant capital investments and another 70% achieved some of their transactions projected for cost structure efficiencies. While this reflects positively for mergers and acquisitions, organizations developing a more co-opative structure can see the same.

With the importance of managing costs, operating with less margin and new threats of consumerism entering the industry, much of this is not surprising. We have to recognize that health care is a consumer-driven industry. Patients are realizing a lot more of the cost out of their pocket, and they are playing a much bigger role in where and how they get care. So what do we do to survive, especially as we see new entrants in the market like Walmart, Best Buy and Amazon, who are very nontraditional providers, as well as increased competition with greater systemization through mergers and acquisitions and even more care offered virtually? There may be an answer in co-opetition.

Practical examples

Someone recently said that co-opetition has a bit of a spongy definition, but it is really quite simple. It is nothing more than collaborating with those likely seen as competition to achieve gains that are exponentially greater for both parties and consumers than that of working independently. To some degree, we already do this with various arrangements in health care, like outreach programs, third party arrangements for knowledge and resource sharing; even referrals can reflect a form of co-opetition.

Fast forward my career a bit. I left health care consulting and returned to the direct patient care setting where I found myself in the throes of this very model of co-opetition. Two years ago, our organization sold a 118,000-square-foot hospital which provided every bit of inpatient, outpatient and surgical care. Our average daily census had been steadily declining. In our case, as a pediatric orthopedic center of excellence, we were finding many of our procedures could be accomplished in an ambulatory space without hospitalization.

We now lease an 18,000-square-foot medical office as an ambulatory care clinic. The interesting thing is we still provide inpatient/outpatient surgeries and have patients admitted for inpatient stays when necessary. To do this, we collaborated with a direct competitor and lease time from them to do surgeries and admit patients when necessary.

What are the wins in a relationship for both parties? We no longer have to cover the overhead costs of unused space and staff resources to be operational. Our competitor gains an increase in utilization of their ORs and additional inpatient stays for the kind of patient they know how to manage. For the patient, the gain is they get the best care.

This sort of win also happens in the reverse for us. Previous competitors are asking us to operate and staff programs which they struggled to keep running but want to keep as a viable offering to their patient populations. While it helps that we are a subspecialized provider for pediatric orthopedics, the variations for these kind of relationships are considerable. A good example is that independent radiology programs are now in place in many competing organizations. Similarly, medical specialty practices may become the complimentary partner supporting health care organizations who curate or create the assembly of care services for populations of patients.

Such co-opetition is really not that new, and while it may feel that way to the health care industry, the world has a history of such efforts. The moon landing just over 50 years ago is remembered as the culmination of a fierce competition between the United States and the USSR. But in fact, space exploration almost started with cooperation. President Kennedy proposed a joint mission to the moon when he met with Khrushchev in 1961 and again when he addressed the United Nations in 1963. It never came to pass, but in 1975 the Cold War rivals began working together on Apollo-Soyuz, and by 1998 the jointly managed International Space Station had ushered in an era of collaboration. Today a number of countries are trying to achieve a presence on the moon, and again there are calls for them to team up. Even the hypercompetitive Jeff Bezos and Elon Musk once met to discuss combining their Blue Origin and SpaceX ventures.

The term co-opetition probably does not resonate in the vocabularies of most health care leaders.

Making it work 

The expanded adoption of co-opetition in health care will combine existing approaches from other industries with the unique dynamics of providing patient care. To reach co-opetition’s best potential, it will be important to develop careful strategies and ask difficult internal questions. How can we reposition what may have been a competitive and possibly adversarial relationship with a nearby health care entity to one of shared goals for mutual gain?

Can we create a focus on the centrality of multiple stakeholders in forming, executing, and developing co-opetition? The parties will have to agree on how far to extend their cooperation, who is in charge, and how to terminate the arrangement should it no longer make sense. They will need to agree to acknowledge that the benefits of shared knowledge and resources outweigh continued investment in dysfunctional competition. There is an emotional aspect to this approach, and some people will embrace the idea of no winners or multiple winners while others will be steadfastly against it.

Fostering co-opetition can allow organizations to do the following:

• Share strengths. Companies can combine their unique advantages and complementary strengths so that each can benefit while remaining in competition with each other. This allows them to create a more complete product together.
• Distribute the workload. Coopetitors can grow their business network and merge their workforces to take on projects that are too big for one company.
• Team up against larger competitors. Smaller companies, especially technology startups, may be in competition with each other and a larger, well-established company. Cooperating can allow the smaller companies to rival the larger one.
• Improve market performance. Competitors can work together to penetrate new markets or develop existing ones. Developing existing markets means providing a better product or service to the current customer of a company. Market penetration means tapping into new markets through collaboration with competitors in target markets.
• Foster technological innovation. Competitors working together drive innovation. Each company involved in the relationship can add what they learn from the collaboration to their own products or services.
• Establish industry standards. Competitors in the same industry can share data and drive adoption of a given technology. Doing this can assist in developing standards and requirements that help the industry without jeopardizing a company’s intellectual property or core competency.
  

Takeaways 

There are several benefits to co-opetition, and in health care the most important one is improved patient outcomes. These may manifest in many ways, including increased access to care, whether geographically or through more affordable care. Co-opetition does not preclude continued competition, but it implies sharing strengths. It can allow smaller organizations to compete with larger ones by sharing workloads or workforces. Another benefit can come through increased marketplace penetration through both reaching new patients and improving the standards of care. As the pace of innovation in health care technology expands exponentially, co-opetition can provide a basis for developing and incorporating best practices around change management.

As the costs of health care continue to rise, the current health care delivery system will be forced to find new ways to operate; expanding the role of co-opetition will be part of this. We are seeing exciting examples in new medical facilities construction. Health care workforce shortage issues are at a serious tipping point and it may be through co-opetition that some solutions to these problems arise.  

Recently, health plans in Minnesota, which compete fiercely between themselves for market share, came together to share resources around the topic of COVID vaccine health disparity issues. Working with the MN Department of Health, they found remarkable success. This work could translate to address other issues, such as disparities in behavioral health access, but it could also expand and redefine co-opetition in new ways. Innovations in reimbursement, providing incentives to address work force shortages, might be an example.

While co-opetition might be a consideration for your organization as you think about future strategies, it is a mindset you have to embrace as well. Competition does not have to be the evil that is often warded off by counter moves, it can be mutual gain for all, especially the consumer who has more of a final say.

David J. Voller, MBA, FACHE is currently the Clinic Administrator at Shriners Children’s Twin Cities. His 30 year career has all been in healthcare and health care related services which includes, Mayo Clinic, Gillette Children’s and BWBR. David is a Fellow of the American College of Healthcare Executives, sits on the board of ACHE MN and Chair for Membership and Advancement. He has been published and sat on numerous panels addressing the advancement of health care delivery and services helping to transform the industry to better serve the needs of the consumer.