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.