Connie CibroneIndependent hospitals today face myriad financial, regulatory, and strategic challenges. Amid concerns ranging from continued uncertainty around healthcare reform to severe financial challenges caused by steadily declining Medicare payments, hospital leaders and boards are asking themselves how they can maintain the competitiveness and, ultimately, the independence of their organizations. 

James StanfordWhether hospitals can—or even should—remain independent is no longer just a hypothetical question. With the number of hospital deals rising from 52 in 2009 to 90 in 2011 (Source: Irving Levin Associates, The 2011 Health Care Service Acquisition Report, 17th edition), the consolidation trend in health care is gaining momentum as larger health systems further strengthen their capital and market positions. This trend leaves independent hospitals with the challenge of balancing the desire to remain independent with the ability to deliver on their mission. 

Today’s leaders of independent hospitals are asking key questions:

  • How hard will my organization be hit by factors related to healthcare reform, persistent economic weakness, and other industry and market dynamics?
  • Does my hospital have sufficient operating strength, capital, and resources to sustain and improve performance to the level required to remain competitive in my local or regional market?
  • How much margin improvement is necessary for my hospital to remain financially viable and competitive?

To accurately and effectively assess their current competitive situation and future options, hospital leaders should address these questions as candidly and comprehensively as possible. The following five guiding principles can help hospitals leaders evaluate their market positioning and better balance their stakeholder needs with the pressures of today’s healthcare industry.

Start from a point of objectivity. Given the complexity of the questions that now confront hospitals, it is critically important to develop and work with a baseline of objective facts. In light of healthcare reform and other factors, hospitals need to understand current performance, as well as project future performance, under a range of scenarios. We have found that six factors correlate with sustained independence and, thus, should be carefully analyzed as part of this objective fact-finding process: 

  • Governance
  • Strategy
  • Profitability
  • Liquidity/leverage
  • Size
  • Demographics

Hard facts help to separate vital strategic discussions from emotionally driven assumptions and suppositions and ensure that decisions ultimately reflect your true local situation. 

Take a holistic market view. Your ability to sustain independence is directly affected by the characteristics and actions of others in your market—including physicians, competing health systems, payers, and employers. It is important to develop a holistic perspective on each of these key players and to attempt to predict the range of future strategies they might pursue and associated implications for your organization.

Have an honest conversation with your hospital’s key stakeholders. These stakeholders include your board, your management, physician leaders, and other key players. Armed with a fact-based analysis of your competitive situation, you can weigh the pros and cons of the possible independence scenarios and whether remaining independent is even in the best interests of your hospital’s community. This open, candid approach not only engenders good decision making, but also promotes buy-in among key stakeholders.

Don’t overly focus on size. The size of your hospital is not always a reliable proxy for your ability to sustain independence. In fact, there are examples across the country of smaller hospitals out-performing larger health system competitors in their core markets. Size alone will not improve performance, unless it drives tangible improvements in cash position, operating efficiency, market position, physician relations, and leadership.

Revisit the key questions regularly. Accurately assessing your hospital’s competitive situation and viability to stay independent is not just a one-time undertaking. The “micro” and “macro” factors affecting your hospital are constantly shifting, requiring a continuous recalibration of your fact-based assumptions and strategic planning. Because of the high velocity of change in today’s healthcare industry, decisions that may have only recently seemed crystal clear can suddenly require a totally different calculus.

Guided by these principles, hospital executives can conduct a meaningful, assessment of their institutions’ competitive posture and make well-informed decisions regarding their future options. In the year ahead and beyond, independent hospitals will continue to face considerable headwinds in this historically challenging economic and regulatory healthcare environment. Against this backdrop, hospital leaders will need to grapple with difficult choices about how to stay competitive and how to remain independent, if independence is indeed their best course. By using objective, fact-based data and inviting key stakeholders to participate in the discussion, independent hospitals can make the right decisions for their futures. 

 


Connie Cibrone is senior director, Client Service, Objective Health, Waltham, Mass.  

 

James Stanford is director, Client Service, Objective Health, Waltham, Mass.

Publication Date: Wednesday, October 09, 2013