This article explores one of the most challenging and interesting
questions that hospital boards are facing as they move into 2014 and the
future.
This article is written within the context of healthcare DAVID vs. GOLIATH that is occurring at all levels. At the hospital level, hospitals are merging into other hospitals and independent hospitals are finding it more challenging to thrive on their own. At the hospital-physician level, the system has shifted toward one in which nearly 50 percent of all physicians are employed by hospitals and health systems, and nearly 80 percent of all physicians have some sort of financial relationship with hospitals. There is also increased consolidation among payors (although a great deal of this consolidation has already happened over the last 10 years). This has resulted in only several key payors existing in most markets. Finally, payors are increasingly re-entering the healthcare provider business, either as a hedge against provider market power in certain markets or in an effort to attempt investment in areas outside of insurance.
1. Can A Hospital survive independently?
Today, we see more hospitals being gobbled up by the massive profit centers. This bodes well to take a peek inside. Many hospitals are examining whether they will be able to survive as independent entities over the next several years. A couple of studies have looked at the key factors leading to hospital bankruptcies and the key factors that can be used to assess whether a hospital is in a position to survive independently or not. One study, for example, shows that the three biggest causes of financial instability for a hospital and potentially leading to bankruptcy are mismanagement, increased competition and significant reimbursement changes. For an overview of issues impacting hospital viability, see "Factors Associated with Hospital Bankruptcies: A Political and Economic Framework" by Amy Yarbrough Landry & Robert J. Landry published in the Journal of Healthcare Management in July 2009. The article also notes that "bankrupt hospitals are smaller than their competitors. They are also less likely to belong to a system and more likely to be investor owned."
Here are my factors which can be used to help assess whether or not a hospital can survive independently. These included:
This article is written within the context of healthcare DAVID vs. GOLIATH that is occurring at all levels. At the hospital level, hospitals are merging into other hospitals and independent hospitals are finding it more challenging to thrive on their own. At the hospital-physician level, the system has shifted toward one in which nearly 50 percent of all physicians are employed by hospitals and health systems, and nearly 80 percent of all physicians have some sort of financial relationship with hospitals. There is also increased consolidation among payors (although a great deal of this consolidation has already happened over the last 10 years). This has resulted in only several key payors existing in most markets. Finally, payors are increasingly re-entering the healthcare provider business, either as a hedge against provider market power in certain markets or in an effort to attempt investment in areas outside of insurance.
1. Can A Hospital survive independently?
Today, we see more hospitals being gobbled up by the massive profit centers. This bodes well to take a peek inside. Many hospitals are examining whether they will be able to survive as independent entities over the next several years. A couple of studies have looked at the key factors leading to hospital bankruptcies and the key factors that can be used to assess whether a hospital is in a position to survive independently or not. One study, for example, shows that the three biggest causes of financial instability for a hospital and potentially leading to bankruptcy are mismanagement, increased competition and significant reimbursement changes. For an overview of issues impacting hospital viability, see "Factors Associated with Hospital Bankruptcies: A Political and Economic Framework" by Amy Yarbrough Landry & Robert J. Landry published in the Journal of Healthcare Management in July 2009. The article also notes that "bankrupt hospitals are smaller than their competitors. They are also less likely to belong to a system and more likely to be investor owned."
Here are my factors which can be used to help assess whether or not a hospital can survive independently. These included:
- Does it have a high standard quality of care? Alternatively, is it the type of hospital that a staff member or Board member would take his or her family to?
- Does it have geographic barriers?
- What does its payor mix look like?
- Does it have a good management structure?
- What does its asset base look like? Does it need to make significant capital investments? Does it need to make significant renovations or build a replacement hospital? Does it have other significant obligations ahead that it can't fund?
- What is its cost structure? Is it locked into long-term pension liabilities? Long-term lease rates? Or other long-term fixed costs that are not changeable?
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