Why the Benefits of Being Independent Can Outweigh Systemization
Independent hospitals face undeniable challenges in today’s stressful, competitive healthcare environment. The estimated 1,609 independent hospitals in the U.S. must go at it alone in the world of declining reimbursement, increasing expenses, declining inpatient volume, new competition, and provider shortages. Consider these stats:
- In 2018, hospital consolidations were up 11% from the first quarter of 2017
- Since 2010, hospital mergers and acquisitions are up 75% from 66 transactions in 2010 to 115 in 2017
- More than 85 rural hospitals have closed since 2010 and those closures were spread across more than 26 states
In the face of these challenges, a 2011 to 2015 Definitive Healthcare analysis identified a concerning trend: only 143 out of around 1,450 independent hospitals could be classified as “high-performing,” based on a median operating margin of at least four percent.
The benefits of systemization are well touted: increased efficiency, lower costs, increased quality, economies of scale, increased access to capital, greater talent and intellectual resources, increased leverage with payers resulting in increased reimbursement. However, there is debate around how recent megamergers will fail, and on March 16, 2016, Paul B. Ginsberg, lauded economist, testified before the California Senate Committee on Health on fostering competition in consolidated markets and stated, “The research literature on hospital mergers is now substantial and shows that mergers lead to higher prices, although without any measured impact on quality.” In light of his testimony, we want to consider how stand-alone hospitals can succeed in today’s difficult healthcare environment. Being an independent hospital has advantages, and those must be used as the basis of short- and long-term strategic planning for success.
Learn How An Independent Hospital Began to Thrive with A New Strategic PlanDownload this success story to get the perfect template for strategic growth
Independent hospitals, particularly those that have been previously connected to a major health system, must face and overcome a few hurdles:
Achieving Financial Stability
Independent hospitals must find a way to at least stay afloat, if not thrive financially, without the efficiencies and economies of scale that come from being part of a system. Finances can be particularly difficult for rural hospitals and hospitals in states that did not expand Medicaid. Reimbursement is not increasing at the rate of expense increases and hospitals report 10 to 20% increases in drug costs per year. Medicare payments increased on average 1.3% in FY 2018 while inpatient volume continue to decline creating financial issues particularly for rural hospitals with high fixed labor costs. Independent hospitals can overcome these challenges by:
- Securing additional funding through collaborations and partnerships
- Looking for ways to encourage a more favorable payer mix
- Finding ways to increase volume while holding down costs
Acquiring Necessary Tech and Personnel
In order to gain the reputation as a reliable, top-notch hospital, independents must find a way to staff highly qualified personnel and maintain state-of-the-art technology. Provider shortages are disproportionately affecting independent hospitals as physicians want to join large groups to provide lifestyle accommodation such as little or no call. Additionally, the best equipment is costly to maintain. How can an independent hospital respond?
- A hospital’s reputation can do much to help attract qualified staff and recommendations from referring physicians
- Get creative by attempting “mixed model” employment or are pursuing clinically integrated networks of independent and employed physicians
- Keep tabs on the numerous new startups focused on health and technology, as these could greatly aid issues related to maintaining the best in tech
Establishing a Strong Footing in the Community
New competition from retail clinics such as CVS, ambulatory surgery centers owned by physicians, insurers offering tele doctor consults, and the like are cutting into volume of independent hospitals who may not have the resources to compete. It’s not to be overlooked, though, that rural hospitals, community hospitals, and critical access hospitals have a deep familiarity and long history with the communities they serve. These independents can compete by:
- Leveraging their long-standing reputation with the community and continuing to build upon patient and clinician loyalty
- Strengthening local, strategic partnerships
- Providing essential, sought-after services they know the community wants
However difficult the challenges may seem, the benefits of being independent include the opportunity for local autonomy and decision-making and the ability to more quickly make decisions and implement new ideas. The advantages of being independent can outweigh the perceived advantages of being with a system, including the following:
- Size and scale can mean distance and detachment, whereas an independent can oftentimes maintain a more personal relationship to patients and keep a closer eye on community needs
- Decision-making is made at a local level, with home-town insights, rather than being based on system-wide needs and concerns
- Fewer layers of decision-making means independents and be more agile and responsive to opportunities as there is less big system red-tape to overcome
Keys to Remaining Independent
With certain variables in place, remaining, or becoming an independent hospital can be the right choice. Here are a few factors that can contribute to success:
- Competent leadership with a growth mindset
- A patient-focused culture set on delighting the people you are serve
- A favorable payer mix and higher-than-average discharge volume
- Geography: distance to the nearest hospital or a bigger city provides a natural advantage, being the only source of care within the immediate area
- Community support, both in utilization (leading to a high market share) and philanthropy
- Use of data analytics to make decisions, as this gives any hospital an advantage of market understanding and the ability to more appropriately target and support community needs
While a few factors on that list are hard to control—including geography and payer mix—most are within reach if your hospital is flexible, growth focused, and fueled by an effective strategic planning process.
Hospitals have a responsibility to meet their mission. If the mission can be met by remaining independent, then stay independent. The hurdles are unique to each hospital and each community, but with the right tools and strategies in place, most hurdles can be overcome.
For more information on how Stratasan can help your team to make more data-based decisions that can support strategic growth, improve market understanding, and create more effective marketing outreach, contact Sean Conway and schedule a discovery call today.
Article by Lee Ann Lambdin, SVP of Healthcare Strategy for Stratasan