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The fate of independent hospitals: Can, will they remain independent?

In the midst of the flurry of mergers and acquisitions, the healthcare industry is eyeing independent hospitals to see what moves, if any, they plan to take and what strategies they employ to remain independent.

At the Becker's Hospital Review 6th Annual Conference in Chicago, Brian Silverstein, MD, managing partner at HC Wisdom, moderated a panel on succeeding as an independent hospital. He asked the three panelists to discuss the state of their hospitals.

Abha Agrawal, MD, vice president of medical affairs and COO of Norwegian American Hospital in Chicago, first outlined the history of Norwegian American Hospital. The hospital was on the verge of collapse, with quality scores receiving F grades from The Leapfrog Group and facing financial distress. Dr. Agrawal said the key to Norwegian American's turnaround was the focus on quality and safety of care. "Without that, you cannot have a transformation," she said. "Making quality a top priority, bigger than finance and bigger than volume, I think that was a pivotal turning point."

This renewed focus on patient care quality was the key to avoiding closure and perhaps a lifeline to remain independent.

Tom Macy, former CEO of Nebraska Orthopaedic Hospital in Omaha, said they too focused on quality after looking at value propositions. For an orthopedic hospital, Mr. Macy said their biggest factor in terms of managing cost was related to implants and supplies. While there is importance in remaining independent, Mr. Macy said the hospital's success as an independent hospital also relies on partnerships with other organizations in the area.

"We were going to get paid a bundle to provide these services, but we weren't going to get paid a number for the cost of everybody's orthopedic care, so we believed we needed to form and maintain relationships across a variety of different systems," Mr. Macy said.

At Hillsdale (Mich.) Community Health Center, President and CEO Duke Anderson said the hospital is currently focused on improving revenue cycle. The hospital is located in a county with higher proportions of older and poorer patients requiring more and expensive care. The hospital, Mr. Anderson said, has really felt a lot of the industry and environmental shifts. Revenue cycle remains the hospital's key priority.

"Part of our problem is we've been moderately successful financially, so we [don't always see the] need to change our ways," Mr. Anderson said. "But we got a good kick in the head last year with the sequester and other items. So now we need to pay attention."


Dr. Silverstein then asked panelists point blank if they plan to remain independent.

Mr. Macy said, for his service line in orthopedics, remaining independent it will be based on how successful an organization is in driving referrals. "Everybody looks at this from trying to get away from volume and move to value, but from an orthopedic and procedural standpoint, volume may be more important…because that's the only way you can really drive [low cost and high quality]." It will depend on hospitals' value proposition, he said.

Dr. Agrawal said Norwegian American Hospital will do whatever is required to remain true to its core mission. "What's more important [than remaining independent] is that we don't close any doors and we remain adaptive and flexible to a variety of forces that are going to be driving that decision."

Some of those factors, she said, remain unknown, such as the upcoming presidential election and the fate of the Patient Protection and Affordable Care Act.

"I see great value in our current form [of independence] in being able to have control for the sake of the patients and the community," Dr. Agrawal said. "If that equation completely changes for this variety of factors, we have to have an open mind."

Mr. Anderson said remaining independent at Hillsdale Community Health Center hinges on keeping all stakeholders engaged and committed. "As long as you can keep a motivated board, medical staff, management and employees, you can build on your track record of success," he said. "We have some loyal customers out there, but most importantly, we've got a pretty good sense of what we are and what we aren't. And for goodness sakes I just hope we avoid some really bone-headed moves."

More articles on transactions and valuations:

3 keys to selecting affiliation partners
7 lessons on partnerships from Akron General Health System and Cleveland Clinic
Q1 hospital M&A activity keeps pace with 2014

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