Read about:
|
In 1995, The Bridge, a non-profit residential treatment facility in Northeast Philadelphia for adolescents and an outpatient addictions program for persons of all ages, emerged from Chapter 11 bankruptcy as a subsidiary of the Philadelphia Health Management Corporation (PHMC). PHMC is a non-profit public health organization that defines problems, conducts research, develops solutions and provides assistance to other organizations involved in health and human services in the Delaware Valley. As a result of this parent/subsidiary relationship, The Bridge regained financial stability and the ability to focus on the delivery of services while benefiting from PHMCís management and administrative capabilities. Simultaneously, PHMC added specialized services for adolescents to its continuum of substance abuse treatment.
|
The Bridge was founded in 1971 to provide quality, accessible substance abuse treatment to adolescents and to prepare them to re-enter their communities as drug- and alcohol-free members of society. Building on its initial success, The Bridge added an on-site private school to allow residents to continue their education while in treatment, as well as outpatient programs for children and adults. Philadelphiaís Coordinating Office for Drug and Alcohol Abuse Programs (CODAAP), the Pennsylvania State Department of Education, and the Philadelphia Department of Human Services (DHS) were historically The Bridgeís primary sources of funding. By the early 1990ís, The Bridgeís annual budget was approaching $2 million. |
In the late 1980ís and early 1990ís, The Bridgeís clients were becoming more demographically diverse and their needs increasingly varied, interconnected and complex. The Bridgeís staff lacked experience in treating and marketing to this population. In addition, a sizable portion of the founding staff was retiring or moving on. In the past, The Bridge had been able to rely on staff who had years of experience with, and may have created, The Bridgeís financial and administrative systems. The agencyís dependency on these staff members and its lack of infrastructure resulted in financial and administrative difficulties following their departure. Meanwhile, the emergence of managed care brought reduced duration of patient stays. For all of these reasons and others, The Bridge was experiencing low census and financial strain. Its financial difficulties were greatly exacerbated when The Bridge did not receive a contract and funding for costly services that had already been provided, due to changes in state funding for its education program. At a time when the organization needed assistance and strategic direction from its Board of Directors, some Board members continued to focus on minor details instead of larger strategic issues, while other members struggled to address the programmatic, financial, and managerial challenges being faced by staff. The survival of The Bridge was at stake.
 |
Founded in 1972 as a federal demonstration, by the early 1990ís PHMC had grown to a $15 million organization serving as a resource for all segments of the health and human services communities in the Delaware Valley. PHMCís mission included the provision of direct services (including drug treatment, case management for infants and young children with developmental disabilities and delays, healthcare for the homeless, and outreach), research, program evaluation, and the provision of management and technical assistance to other non-profits. In 1989, PHMC acquired Interim House, a residential and outpatient treatment program for women addicted to drugs and alcohol. Soon after, PHMC opened Interim House West, a long-term substance abuse residential and continuing care treatment program for addicted women and their children. Through its success as a niche provider of substance abuse treatment to underserved populations, PHMC developed a positive relationship with CODAAP, the primary funder of PHMCís substance abuse treatment programs. |
Because The Bridge was the only substance abuse program in Philadelphia specializing in treatment for adolescents, CODAAP was concerned about the programís difficulties, and in 1990 CODAAP retained PHMC to assess the feasibility of continued operation of The Bridge. The Bridge, with financial assistance from CODAAP, hired PHMC in 1991 to implement the recommendations PHMC made at the conclusion of its assessment. The Bridgeís situation improved through the implementation of recommendations such as hiring a controller, implementing marketing strategies, and renegotiating contracts. However, the controllerís analysis of The Bridgeís financial situation revealed that The Bridgeís debt was so substantial that the Board had little choice but to declare Chapter 11 bankruptcy in order to reduce its debt and "start anew."
The Executive Director and new Controller of The Bridge took an active role in positioning the organization for the future. They knew that The Bridge had to affiliate with a larger organization that could provide it with a line of credit and assure the bankruptcy court that it could emerge from Chapter 11 as a financially stable agency. In addition, The Bridgeís leadership worried that smaller organizations would not survive managed care "going it alone." The key to The Bridgeís future was finding the right partner. The Executive Director and Controller wanted The Bridgeís partner to have a compatible mission; in particular, the partner must share The Bridgeís belief that long-term treatment for adolescents is effective and efficient. In addition, to enable The Bridge to rebound from its financial difficulties, its partner should offer relationships with funders, demonstrated success in managing program finances and an opportunity for The Bridge to be part of a continuum of services.
The Bridge considered several organizations as potential partners, and PHMC emerged as the partner of choice. PHMC managed other long-term substance abuse treatment programs, had a positive relationship with CODAAP and specialized in the administrative and financial management of programs. While other organizations in the Philadelphia area could have met these criteria, The Bridge and PHMC had already demonstrated their ability to work together through management contracts. An oral agreement between The Bridgeís Board President and PHMCís Chief Executive Officer signaled the beginning of proceedings to formalize an alliance between the organizations.
For the most part, the following individuals were involved in negotiations between The Bridge and PHMC: The Bridgeís Board President, Treasurer, Senior Director, Controller and bankruptcy attorney, and PHMCís Chief Executive Officer, Chief Financial Officer, Executive Vice President and legal counsel. Some topics of negotiation were straightforward due to The Bridgeís financial and legal status. For example, a parent/subsidiary model was the only type of relationship considered because it would help protect PHMC from The Bridgeís financial liabilities and the on-going liabilities associated with an adolescent residential drug treatment program. A parent/subsidiary model was also more appealing than a merger because The Bridge could be more easily separated from PHMC if the relationship ceased to be beneficial to either party. In addition, as a separate, small corporation, The Bridge could continue to qualify for funding not available to organizations as large as PHMC.
A legal "sidebar" agreement was created by The Bridgeís attorney early in negotiations to clarify and provide PHMC with an opportunity to agree to some conditions important to Bridge staff. For example, this agreement guaranteed that The Bridge would retain its name and key members of the staff would keep their jobs for at least one year. While the "sidebar" agreement was not packaged with other official documentation such as the bylaws, it served as a formalized handshake agreement between the agencies and enabled further negotiations to be conducted in good faith.
In addition to negotiations between The Bridge and PHMC, the two parties together negotiated with The Bridgeís creditors. To accelerate bankruptcy proceedings and maintain a positive relationship with creditors from which The Bridge would request funding in the future, such as the Pennsylvania State Department of Education, The Bridge and PHMC negotiated to reduce the debt substantially and enable creditors to receive payment as quickly as possible.
In order to protect PHMCís financial statements from The Bridgeís debt, The Bridge and PHMC did not finalize their parent/subsidiary relationship until bankruptcy proceedings were complete. In 1994, The Bridge emerged from Chapter 11 as a subsidiary of PHMC. As the parent, or sole member, of The Bridge, PHMC could select the membership of The Bridgeís Board. To symbolize the rebirth of the agency and to handle sensitively the dismissal of Board members, the entire Board of Directors was disbanded and rebuilt. The Bridgeís staff was in agreement with this strategy. PHMC appointed a Board that included some of The Bridgeís previous Board members, PHMCís Chief Executive Officer and Chairman of the Board, and new members with interest and expertise in The Bridgeís core business. The Bridgeís bylaws were modified to indicate that PHMC was the sole member of The Bridge with representation on its Board of Directors, and to establish new guidelines about the size of the Board and duration of its membersí terms.
Finalizing the legal arrangement between PHMC and The Bridge was only the beginning. To work together effectively, the two organizations had to integrate policies and procedures and learn how to communicate with and trust each other. Since both organizations were to remain separate corporations, The Bridge and PHMC could decide which areas to integrate and which areas to operate independently. In a management service contract, The Bridge and PHMC agreed that The Bridge would contract with PHMC to provide financial, marketing, human resources, information system and program development functions. PHMC assigned an internal staff person to help transition these functions and created a new position to oversee its substance abuse treatment programs. From the start, there were inherent cultural and procedural differences between The Bridge, a small, 24-hour, residential facility, and PHMC, a larger administrative organization. Staff at both PHMC and The Bridge began efforts to address these differences and promote integration. Some integration efforts continue today.
 |
During PHMCís assessment of The Bridge and bankruptcy proceedings, PHMC had already helped The Bridge to reallocate costs so that The Bridgeís budget and financial reports could be utilized as effective management tools. Once The Bridge became a subsidiary of PHMC, PHMC hired a full-time controller for its substance abuse programs who would spend three days a week at The Bridge and utilize its existing financial computer system. |
PHMC communications staff helped The Bridge create a new logo, letterhead and marketing materials. Accepting the new look of communications was difficult for Bridge staff since it signified a change in the agencyís identity. Over time, The Bridge came to appreciate PHMCís marketing expertise and was able to increase marketing efforts with PHMCís help.
PHMC and Bridge staff created new personnel policies for The Bridge, modeled after the personnel policies of PHMCís other substance abuse treatment programs. Many policy changes implemented by The Bridge had more to do with efforts to address financial difficulties than with its becoming a subsidiary of PHMC. For example, to reduce expenses, The Bridge instituted a less generous benefits policy for new employees and discontinued its retirement package. These benefits can be increased as The Bridge gains financial strength.
Soon after the implementation of the parent/subsidiary relationship, some Bridge staff received access to PHMCís computer network and email. Later, PHMC created a customized client registry database for The Bridge. Initially, Bridge staff continued to use their existing client registry due to technical challenges associated with accessing the remote database. To address these challenges, PHMC and The Bridge implemented technology enhancements, such as a Wide Area Network, that provide Bridge users with faster and more reliable access to PHMCís computer systems.
Inevitably, many of these changes, including reduced control of administrative functions, were initially uncomfortable for Bridge staff. To facilitate the transition and build trust, PHMC staff met frequently with senior Bridge staff to explain changes honestly and openly, and the senior staff relayed this information to staff on the front lines. In addition, an incentive program was created, which offered Bridge staff a one-time pay bonus if they met annual census goals. This incentive increased morale, fostered teamwork among Bridge staff and resulted in improved census. Monthly team meetings of PHMCís substance abuse treatment program directors enabled staff members to take advantage of synergies, communicate among multiple sites, and realize their integral roles in PHMCís continuum of substance abuse treatment services.
Despite some "growing pains," both The Bridge and PHMC are stronger organizations as a result of their strategic alliance. While the most obvious and immediate benefit of the parent/subsidiary relationship was the survival of The Bridgeís programs, history and identity, both PHMC and The Bridge continue to experience numerous benefits from their relationship. The Bridge is able to focus on its programs while relying on PHMCís strengths in financial management, marketing and strategic planning. The Bridge can maintain its smaller size, while benefiting from the network of contacts, access to capital and economies of scale of a larger organization. For example, The Bridge immediately was able to reduce its use of controller time by 40 percent and eliminate the need for its own program development staff. PHMC has utilized its relationship with funders and its understanding of financing programs to negotiate rate increases for The Bridge. Over the last couple of years, PHMC has spearheaded several capital campaigns which have raised over $200,000 for renovations of The Bridgeís facilities.
PHMC expanded its continuum of services by adding specialized services for adolescents to its young family of drug treatment programs. Its relationship with The Bridge furthered PHMCís reputation with both clients and funders as a niche provider of services to underserved populations. In addition, PHMC benefited from The Bridgeís positive relationship with DHS. PHMC has since received additional funding from DHS for Interim House West, another of PHMCís substance abuse treatment programs.
While bankruptcy drove The Bridge to explore a strategic alliance, the benefits of the relationship between PHMC and The Bridge have gone far beyond The Bridgeís survival.
|
This case study is one of a number of case studies, quick references and directories in the Philadelphia Health Management Corporation's Non-profit Strategic Alliances Project Materials. These materials were created to assist non-profit executives and Boards in the Philadelphia area explore how strategic alliances can help them address the growing challenges faced by their organizations. For more information on the Philadelphia Health Management Corporation or to purchase the Strategic Alliances Project Materials, contact Megan Vnenchak at megan@phmc.org. |