Protecting and Preserving the Community Hospital — Immediate Actions for Future Success

With the Supreme Court's recent decision to uphold the Patient Protection and Affordable Care Act, hospitals can now move into high gear preparing for new payment and delivery models. While many large systems and hospitals have already partnered with physicians and payors to create accountable care organizations and other relationships, smaller community hospitals may not have the resources to transform their organization as quickly.

David Pederson, chairman of the board of trustees at Great Plains Regional Medical Center in North Platte, Neb., and Mike Williams, president and CEO of Community Hospital Corp., share challenges community hospitals are facing and immediate actions they can take to survive in the current and future healthcare environment.


Here are four of the top challenges facing community hospitals.

1. Revenue cycle. Medicare reimbursement levels are on the decline for hospitals. Community hospitals, many of which are safety-net hospitals, serve a disproportionate amount of Medicare and Medicaid patients and may thus suffer more from these cuts than larger hospitals that have a larger proportion of privately insured patients. In addition, many community hospitals do not have the clout to secure the best rates from managed care providers, whereas larger hospitals can often more easily negotiate with managed care providers to increase their revenue, according to Mr. Williams.

"Payors are expecting high quality and low cost," he says. "It's something community hospitals want to provide, but it's becoming more and more challenging as sources of reimbursement are diminished."

2. Access to capital. Community hospitals are also facing a lack of access to capital, in part due to reduced reimbursement, according to Mr. Williams. This lack of access prevents community hospitals from updating their facilities, which can affect patient volume and quality of care as buildings age.

3. Physician recruitment. A third challenge for community hospitals is recruitment of physicians and other healthcare personnel. The physician shortage is one reason for this difficulty. In addition, it is often difficult to attract the necessary mix of primary care physicians and specialists to remote or rural areas where many community hospitals are located, Mr. Williams says.

4. Hospital-physician alignment.
Community hospitals, like all hospitals, also struggle to work cooperatively with their medical staff to improve quality and lower costs.

Immediate actions

Here are six actions community hospitals can take to ensure future success.

1. Optimize internal operations. Before looking externally for support, community hospitals should assess their internal operations and optimize efficiency, Mr. Williams says. "Are you providing care in the most cost-effective manner with the highest quality outcomes?" he asks.

2. Benchmark performance. Community hospitals can improve efficiency and increase savings by benchmarking performance against similar hospitals. Comparing clinical data can help hospitals identify opportunities for improvement and spur change. Improving performance can benefit the hospital not only directly by improving patient care and finances, but also indirectly by making it more attractive to potential partners, according to Mr. Williams.

3. Assess feasibility of independence. After a community hospital makes as many internal improvements as possible, it should assess the feasibility of remaining independent. The ability of a community hospital to remain independent depends on many factors, such as the size of the patient population and competition in the area, according to Mr. Williams. Community hospitals need to determine if they can sustain financial success not only in the current environment, but also in the future as the demand for integrated care grows.

4. Consider forming new relationships. If internal improvements are not sufficient to compete in the marketplace, community hospitals should consider forming relationships with other organizations to help meet the demands of high quality and low cost.

When seeking a partner, community hospitals should evaluate the alignment of the hospital's culture and the culture of the potential partner, according to Mr. Williams. Having similar values will allow both organizations to work cooperatively toward their goals.

Define expectations
Community hospitals need to define their expectations upfront when discussing a potential partnership with another organization, such as a tertiary care hospital. Community hospitals may want to partner to address revenue cycle, access to capital, physician recruitment, physician alignment and health IT issues.

If a community hospital partners with a tertiary care hospital, it may expect to share the larger hospital's clout in negotiating contracts with managed care providers, which can improve reimbursement levels. The community hospital may also expect to gain the partner's revenue cycle expertise to maximize collections.

A community hospital may also want to partner with a tertiary care hospital to improve its ability to recruit and form collaborative relationships with physicians. Mr. Williams suggests there is a "halo effect" when a community hospital partners with a reputable institution, such that the community hospital becomes more attractive to physicians. Partnering with an academic medical center can be particularly helpful in recruitment efforts because it provides a pool of medical residents who are familiar with the community hospital through its affiliation with the academic medical center.  

Understand responsibilities
Equally important as defining expectations is hospitals' understanding of what they must provide in return for the expected benefits of a partnership. For example, in exchange for access to capital, a tertiary care hospital will usually require a degree of authority in the community hospital's use of the capital, according to Mr. Williams. "To the extent [access to capital] is high on list of desirables, community hospitals have to understand they need to give up some level of control to achieve that," he says.

The level of control the community hospital will need to yield will depend in part on the amount of capital desired and the risk level of the investment. The tertiary care hospital may require representation on the community hospital's board, or the community hospital may need approval from the tertiary care partner before using the capital.

Authority in the partnership
The question of authority in a partnership is important, and community hospitals should weigh the benefit of increased capital to the cost of less control. "[Community hospitals] have to ask if they can achieve capital access by better operational performance," Mr. Williams says. "Are they looking for a quick infusion of capital or are they looking to improve processes? Improving processes they employ to provide care can make them more efficient, which leads to a better bottom line. With a better bottom line, they can [access] capital." By optimizing internal operations before seeking a partner, community hospitals may be able to improve their access to capital without sacrificing any authority.

Similarly, community hospitals can have different levels of authority depending on the type of organization they form a relationship with. For 22 years, North Platte Hospital Corp., which owns Great Plains Regional Medical Center, had a contract with a management company. Under this agreement, the management company employed the hospital CEO and CFO. Now, however, North Platte Hospital Corp. is in its third year of working with Community Hospital Corp. for consulting services. This arrangement enables North Platte Hospital Corp. to hire all employees, including the CEO, and take responsibility for all management, according to Mr. Pederson.

The consulting arrangement is less costly and allows the hospital to have more control, Mr. Pederson says. Specifically, the agreement enables the hospital board to fulfill its role in leading the hospital. "It's more cost effective but it also more clearly defines that [the board members] represent the owners of this hospital and we are the ones ultimately making the decisions. Obviously we have administration in place to handle the day-to-day operations, but we decide what programs we're going to have, what physicians and support staff we are going to need and things of that nature," he says.

5. Ensure board involvement. The future success of community hospitals also depends on the involvement of their board of directors and/or trustees. In fact, the board's engagement with the hospital administration and medical staff may be a determining factor in the hospital's ability to survive healthcare reform. "Whether a community hospital is able to stay independent depends on how hard the board is willing to work at keeping the hospital independent," Mr. Pederson says. "If board members are sitting in a ceremonial post and don't really get involved in the overall direction of the hospital, it's very possible that [the hospital] will end up needing to be purchased by some larger organization."

Educating the hospital board
To support a community hospital, the board needs to be educated on its responsibilities, including overseeing the hospital's finances, clinical quality and strategy. Hospital boards can become educated by meeting with the management team, studying publications on hospital boards and seeking other continuing education opportunities. "The board has to become educated and not delegate all the strategic direction [responsibilities] to the management team," Mr. Williams says.

Mr. Pederson says an important way the Great Plains Regional Medical Center board supports the hospital is by providing funding and other resources to create new services, such as interventional cardiology. When considering expanding service lines, the hospital board needs to first determine if there is a need for the service based on the patient population and competition in the marketplace. "It's going to take lot of extra work in terms of meetings and analysis to come to the conclusion that we do or do not have the capacity to add a program like interventional cardiology," Mr. Pederson says.

If the board decides there is a need for a new service, it should then help the management team bring together the physicians and equipment required to develop the service.

Providing accountability
One of the most important duties of a hospital board is holding hospital leaders accountable for the performance of the organization. To provide accountability, hospital boards need to analyze key metrics and ask questions. "With most boards there is a hesitancy to ask questions or to expect certain performance out of the people you hire to run the operation," Mr. Pederson says. "It is probably even more so [the case] in healthcare, where there are so many terms and laws that the lay person doesn't understand. [Board members] have to be willing to put forth some effort to ask questions about how things are working."

The board should look at finance and quality metrics, such as patient satisfaction scores, to monitor the hospital's performance and guide its strategic direction.

6. Collaborate with physicians. Community hospital leaders need to commit to a collaborative relationship with physicians to improve quality and cost efficiency. One way Great Plains Regional Medical Center builds a positive relationship between hospital executives and physicians is by including physicians in leadership positions. The hospital's bylaws require the board to include two physicians elected by the medical staff as well as the chief of staff and vice chief of staff, who are both physicians. Currently, physicians account for roughly one-third of the hospital's board. Involving physicians in the hospital's governance ensures they have a voice in the hospital's strategic decisions.

Hospital leaders can also develop a collaborative relationship with physicians by providing data to support their proposed changes. "Physicians are scientifically driven," Mr. Williams says. "A solid base of information technology that's not just hospital based, but that transcends the care delivery scheme into physicians' offices is mandatory for success in the future."

More Articles on Community Hospitals:

3 Ways to Maximize Value in Community Hospital Transactions
3 Methods for Managing Concern in a Community Hospital Acquisition

100 Great Community Hospitals

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