Back to basics: Why systems are focusing on core services

There is no denying that health care organizations are striving to replace siloed services with a comprehensive continuum of inpatient and outpatient locations, providers, and service levels.

However, what is yet to be determined is the ideal ownership portfolio for these components (e.g., own, partner, create preferred network). Over the past few years, health systems have ventured into realms outside of traditional inpatient and outpatient services by investing in health plans, urgent care centers, post-acute facilities, and other related businesses.

While this diversification is intended to improve care quality, integration, and market share retention to fend off declining revenues, the return on investment is not instantaneous. On top of declining inpatient utilization and reimbursement, acquiring or starting new businesses requires significant capital and operational investment – especially when combined with other less profitable initiatives such as employing a large portion of the physician network. In combination, these trends test administration’s capacity, require significant resources, and put pressure on the bottom line.

In response, the pendulum is swinging from diversification back to a focus on core services and achieving diversification through partnerships. Essential service lines may require rejuvenation after taking a back seat to the trend of new and innovative expansion. Looking ahead, systems will typically be less focused on growth in non-core services and more focused on services that will drive revenue, growth, and market share. These services are also likely critical to the system’s academic or community mission, are complex, high volume, and are revenue producing.

While focusing on core services is an emerging trend, the right approach for your system is dependent upon your market’s dynamics. In a market dominated by large, diversified systems it might be necessary to continue expanding business lines to remain competitive. However, in more fragmented markets where there are dominant niche players, such as a large specialty physician group, freestanding outpatient service providers, or a strong urgent care chain, organizations should consider offering those services through partnerships, rather than owning them outright.

Identifying the best strategy for your organization requires thoughtful planning for each service line, beginning with a thorough market assessment (including the payer environment, the presence of niche players, and competitor systems). This is supplemented with an internal assessment that evaluates financial position, payer contracts, competencies, market share, and each service’s impact on the bottom line and overall organizational sustainability. For example, do your payer contracts reward you for services unique to your organization (e.g., complex acute care)?

The following steps will position your organization to determine the ideal service mix for the future:

1. Identify your organization’s core services that drive competitive differentiation
2. Complete a thorough review of non-core services and identify the ideal future approach to each service (e.g., grow, partner, divest)
3. Redeploy resources to support new service mix
4. Continue to monitor the market for changes that may necessitate adjustments (e.g., impending entrants, reimbursement, changes in regulatory environment)

Meredith C. Inniger, MHA, Manager - Veralon
Meredith brings years of experience in both healthcare consulting and healthcare operations to her work with Veralon clients. She has worked with academic medical centers, large community health systems, and independent hospitals. Her work focuses on strategic planning, including service line and ambulatory care planning (with an emphasis on population health strategies), on mergers and affiliations, on development of clinically integrated networks, and on leadership and board development.

Meredith frequently publishes in the field, including a cover story for Healthcare Financial Management.

Alexandra D'Innocenzo, MHA, Associate - Veralon
Alexandra has experience in healthcare consulting and ACO operations. She assists Veralon clients with strategic planning, including plan development, strategy implementation, and transaction support. She has worked with CINs, community hospitals, and large health systems.

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