September 8, 2004
Over the course of the year-long Financing the Future project, it has become clear that a gap exists between U.S. hospitals that have capital to invest strategically and those that are struggling to generate operating margins sufficient to support their capital needs. Without access to capital, these "have-not" hospitals are falling behind in the market and may never be able to improve their financial performance.
The final Financing the Future report explores how these financial challenges will shape the healthcare industry in the future. What will the future health system look like? What can individual hospitals do to survive -- and even thrive? And what should the government's role be in helping hospitals deal with shrinking access to capital?
A diverse panel of thought leaders with unique points of view about the future of health care, particularly as it relates to capital, was assembled to answer these questions. The consensus presents a troubling picture. In general, the experts believe that hospitals with limited access to capital will fall further behind, that more hospital closures are likely, and that quality could suffer in hospitals that fail to keep up with technologic developments. According to the panel, major conditions that could force significant change in the healthcare system include the growing numbers of uninsured and the outsourcing of jobs by employers who find it increasingly difficult to offer affordable health care.
What an Individual Hospital Can Do to Survive -- and Thrive
"First, hospitals will have to be distinctive -- either they have to be the only provider in a segment of the market, or they have to have a strong reputation," stated Paul Ginsburg, Ph.D., President, Center for Studying Health System Change, Washington, D.C. "I expect we are going to see a narrowing of networks; CalPERS said it saved 3 percent on premiums by dropping some hospitals from its HMO network. Second, hospitals need to hold on to their doctors and discourage them from going out on their own."
"Hospitals need to focus on their core services, their priorities. What are their three to four strong service lines?" said E. Preston Gee, Senior Vice President, Strategic Planning, St. David's HealthCare Partnership, Austin, TX. "I don't mean that they have to shut everything else down, but they need to devote their intellectual and
financial capital to those service lines, which may be orthopedic, or ER, or oncology. That's such a different mindset from the blanket strategy of a lot of hospitals."
According to Tom Meier, Corporate Treasurer and CFO, Kaiser Permanente, Oakland, CA, "We're one of the few industries that have not been successful in rationalizing assets. There are a number of services that are common to every hospital, such as pharmacy, parking, and cafeterias. If we were going to rebuild here in Oakland, why not build a common megacenter with different areas for Kaiser and other healthcare providers? Back-office functions such as billing and collecting are the same and could be shared. You could have the same staff serve all the facilities. It would standardize the system. Our industry hasn't gone through the same evolution with services as other industries have -- that is, standardize, consolidate, outsource, then possibly off-shore certain functions."
"Hospitals need to make tough decisions about what services to provide and what locations they want to be in to protect their profit margins. This is essential if they want to be able to fund their future capital needs," commented Martin Arrick, Managing Director, Standard & Poor's, Not-for-Profit Health Care, New York. "However, that runs directly counter to what these recent charity care lawsuits are trying to do. Every hospital needs to have a tuned-up charity care policy. Unfortunately, many of these policies are fairly informal right now."
The Financing the Future project is led by HFMA in partnership with GE Healthcare Financial Services, with research by HFMA and PricewaterhouseCoopers.
SOURCE:
Financing the Future: Where the Industry Will Go from Here. HFMA members received an executive summary of the report in their September issue of hfm. Members can also access the full report for free, and non-members can purchase a copy, from the Financing the Future web site.
Additional Resources
- Financing the Future reports 1, 2, 3, 4, and 5
- Capital: Comprehensive List of HFMA Products and Services
If you have questions or comments about HFMA Wants You to Know, contact editor Laura Noble at lnoble@hfma.org.
HFMA Wants You to Know ISSN: 1540-0697. Volume III, Issue 19. Copyright 2004, Healthcare Financial Management Association. All rights reserved.